How the student loan repayment threshold freeze affects you

What is the price of a good education? It may soon cost you £113 a year more than you expected, as the student loan repayments threshold is being frozen.

On 6 April 2022, the government froze the minimum salary you need to earn before you have to start paying back your student loan. It applies to Plan 2 (for those who started an undergraduate course after 2012) and postgraduate student loans.

The freeze means more people will have to start repaying their loans sooner, putting further pressure on pay packets at a time when the cost of living is soaring.

Below, we explain:

• What does the student loan repayment threshold mean?
• How will the freeze affect those on Plan 2?
• Will the freeze impact those on Plan 3?
• What are the typical student loan interest rates?
• Can you avoid repaying your student loan?

Read more: Should I spend more on my student loan repayments if I can afford to?

Student loan repayment thresholds frozen

The student loan repayment threshold refers to the minimum salary you need to earn before you have to start paying back your student loan.

The threshold usually rises in line with average annual earnings. It was due to go up by 4.6% last year to £28,550 for many undergrads. Instead, on April 6 2022, the government decided to freeze it at the existing level of £27,295 per year until April 2025.

For new students starting their undergraduate degrees this year, the threshold will be £25,000 per year, frozen until 2026-27.

Tuition fee caps will also be frozen at £9,250. The government argued that this will make higher education more affordable and reduce student debt.

Read our student finance guide for more information.

How will my student finance repayments be affected?

The freeze to the threshold means that you could be paying back more of your student loan sooner than you expected.

Here is a breakdown of what you need to know about student loan repayments in 2022.

Student loan Plan 2 threshold 

You are on Plan 2 if you are:

• an English or Welsh student who started your undergraduate course in the UK on or after September 1, 2012, and you have a student loan;
• an EU student who started an undergraduate course in England or Wales on or after September 1, 2012, and you have a student loan;
• someone who took out an Advanced Learner Loan on or after August 1, 2013.

The student loan threshold for repayment stayed at £27,295 per year (£2,275 a month), instead of rising to £28,550 on April 6 as expected.

On Plan 2, you repay 9% of the amount you earn over the threshold.

If you are a graduate earning £30,000, this means you will fork out £113 more a year for the student finance repayment from this tax year. In fact, it could be more like £150 if you factor in the impact of inflation.

Read more about paying back student loans.

Student loan payback threshold for Plan 3 postgraduate loans

You are on Plan 3 if you are an:

• English or Welsh student who took out a postgraduate master’s loan on or after August 1, 2016;
• English or Welsh student who took out a postgraduate doctoral loan on or after August 1, 2018;
• EU student who started a postgraduate course on or after August 1, 2016.

For these Plan 3 postgrads, the student loan payback threshold will be frozen at its current level of £21,000 a year (£1,750 a month), instead of rising to £21,960. 

On Plan 3, you repay 6% of the amount you earn above the threshold.

So, as a postgraduate earning £25,000 a year, for example, you will now pay £58 a year more than if the threshold had not been frozen.  

What about other student loan repayment plans?

What about paying back student finance if you have borrowed under a different plan? 

Plan 1 graduates, such as English and Welsh students who started a course pre-2012, saw their student loan repayment threshold increase from £19,895 to £20,195 a year in April. If you are on this plan, you repay at 9% above the threshold. 

Plan 4 graduates, such as Scottish students who studied post-1998, saw their student loan repayment threshold increase from £25,000 to £25,375 a year in April. If you are on this plan, you repay at 9% above the threshold. 

For pre-1998 student loans, the deferment threshold – meaning the annual salary below which you can opt not to repay your loan – rose from £30,646 to £36,284 for September 2021 to August 2022.

If you have still got an old student loan, by now it may be close to being wiped or you may be able to settle it for a reduced amount.

Are student loan interest rates rising?

Yes, student loan interest rates have been creeping up. That’s because the rate is linked to the retail price index (RPI).

The RPI rate on which student loans are based is usually set every September using the rate from March of the same year.

RPI in March 2022 was 9%, so from September 2022 to August 2023, students were expecting a rate of up to 12% on their loans.

The government announced in June that the student loan interest rates were to be reduced from 12% to 7.3% this year and 6.3% for all loans from September due to the rising cost of living.

The amount owed in student loans is also rising quickly, with 6,000 graduates now owing £100,000 or more compared to just 200 graduates a year ago.

How much will I pay in interest?

What each individual actually pays in terms of interest will vary depending on whether you are still studying and what you earn.

Higher earners will pay more interest, although in practice the majority of people don’t repay their whole loans with interest.

For example, the government expects that only about 25% of current full-time undergraduates to repay their loans in full. Research from the Institute for Fiscal Studies puts this number at just 13%.

However, many more graduates will end up paying significantly more than they initially borrowed. For example, if a graduate owes £50,000 in student loans, and they earn £40,000 a year which increases annually, they could end up repaying over £80,000 during this time.

This is much more than the original loan amount, but it would still not clear the balance. Fortunately for them, the debt will be written off after 30 years.

Remember also that student loan interest rates are unrelated to student loan repayment thresholds.

Most people will repay their loans at 9% of whatever they earn each year above the threshold for their particular student loan plan (6% for postgraduate loans). 

Watch our video below for 5 things you need to know about student finance.

Is there anything I can do to avoid paying back student finance?

If you never earn above the student loan repayment threshold, you will never have to pay off student loans. But, of course, never realising your true earning potential is not the solution to avoid paying off your loan.

While you may want to be rid of your student loan as soon as possible, paying it off early is not usually the answer either.

That’s because student finance is a very cheap form of borrowing for a lot of people who never become high earners.

They might not pay back all of their loan, and certainly not at the full student finance interest rate. So in effect, the loan may be interest free for them.

But if you are likely to earn a decent salary, you might want to crunch the numbers and see if it’s worth overpaying your student loan or just letting it run and risking paying more in interest.

Remember that if you haven’t managed to repay your student loan after 30 years, it gets wiped. 

MoneySavingExpert has a helpful student loan repayment calculator.

The student loan increase due to the threshold freeze is coming at a bad time for many, with the cost-of-living crisis squeezing people’s finances from all sides.

But before you get too despondent, try to keep in mind the bigger picture. While student debt is typically very high, in the end most people won’t pay back everything they borrowed.

Yes, you could use that extra £113 a year. But actually it is a fairly modest rise in the context of what still looks like a generous finance package for UK students.