Average earners will have to repay £56,240 to the Student Loans Company under the new Plan 5 repayment system, according to new analysis by the Intergenerational Foundation. The thinktank has warned that the cost of university education has skyrocketed, and the burden now falls overwhelmingly on graduates rather than the state.
Toby Whelton, author of the report, said: “The burden of student loans has never been higher. By stealth and with minimal democratic scrutiny, successive governments have piled costs on to young graduates in the hope that nobody would notice.” He added: “Plan 5 in particular has received far too little attention. It is a ticking timebomb, set to detonate as today’s students enter the workforce and confront repayment terms harsher than those faced by previous cohorts.”
What is Plan 5 and how does it work?
Plan 5 is an English student loan repayment system for undergraduate and advanced learner courses starting on or after August 1, 2023. It requires graduates to pay 9% of their income above a £25,000 yearly threshold. This is a lower threshold than under previous plans, meaning more graduates will start repaying earlier and pay more over their working lives.
The report estimates that average earners under Plan 5 will repay £56,240 over their lifetime, compared with £25,700 under Plan 1. For lower earners, expected lifetime repayments have risen from £6,430 to £42,070 – a more than sixfold increase. The report notes: “What was always intended to be a cost-sharing system, in which the cost of university would be shared between the individual and the exchequer, now falls overwhelmingly on the individual.”
Political pressure mounts on Burnham and Powell
The analysis comes as Andy Burnham, the new Labour Prime Minister, faces calls to revoke the freeze on the repayment threshold. Lucy Powell, the new education secretary, has said that reviewing student loans is “very much at the top of my in-tray”. The Intergenerational Foundation is urging the government to act before the full impact of Plan 5 is felt by current students.
Whelton said: “We estimate that average earners under plan 5 will repay £56,240 over their lifetime, compared with £25,700 under plan 1.” He added that lower earners have seen their expected repayments rise sharply, making the system increasingly regressive.
Government responds to criticism
A Department for Education (DfE) spokesperson said: “We know the system we inherited is broken and unfair, and some graduates feel the weight of this more strongly.” They added: “We want to make sure the student loans system works better for everyone and are considering our response to the Treasury committee’s inquiry.”
In a separate statement, a DfE spokesperson said: “Whatever young people want to do after they get their results, they should be proud of their efforts throughout their studies and take the time to consider the full range of options available to them.” The government has not yet announced specific changes to the repayment threshold or loan terms.
Impact on students and graduates
The report highlights that the current system places a heavy financial burden on young people, with many facing decades of repayments. The Intergenerational Foundation argues that this is unfair and unsustainable, and calls for a fundamental review of how university education is funded.
As students receive their A-level results and consider their next steps, the cost of higher education remains a key concern. With Plan 5 now in effect for new students, the long-term financial implications are significant. The thinktank warns that without action, the “ticking timebomb” will explode, leaving a generation of graduates struggling under debt.
