Hundreds of thousands of students are being urged to submit their finance applications promptly as a new generation of university loans begins to take effect, with warnings that many could be repaying their debts well into their 60s. The latest English student finance system, known as Plan 5, is already triggering repayments for some borrowers this month, while the majority of graduates will start paying from April 2027. This overhaul could leave middle earners facing significantly larger bills over their lifetimes.
Key Changes Under Plan 5
Under the new regime, graduates must repay 9% of everything they earn over £25,000, compared with a higher threshold of £29,385 under the previous Plan 2 system, which is frozen until 2030. The lower threshold means more workers will be drawn into repayments, even those on relatively modest wages. Interest rates have also changed: Plan 5 loans accrue interest in line with inflation, currently 3.2%, while Plan 2 borrowers can be charged up to RPI plus 3 percentage points, depending on earnings.
Extended Repayment Period
The most significant shift is the duration of the debt. Plan 5 loans are not written off for 40 years, compared with 30 years under Plan 2, dramatically extending how long graduates remain on the hook. Crucially, far more borrowers are expected to clear the debt in full. Around 56% of Plan 5 graduates are forecast to repay everything they owe, whereas under Plan 2, the majority never finished paying before the balance was wiped.
Sarah Coles, head of personal finance at AJ Bell, said: “If you’re going to apply for a student loan for September, you need to get cracking, because the deadline is 15 May. You’ll be applying under Plan 5, which went live in 2023. Most of the first cohort of students on Plan 5 will start repaying in April 2027, but some on short courses and those who left early will start this month.”
Impact on Different Earners
Ms Coles warned the shake-up “changes the maths” for families weighing up whether to fund university costs themselves. “Very high-earning graduates are likely to pay less under the new system, because they were always going to repay everything, and the interest will rack up more slowly,” she said. “Those earning below the threshold still won’t repay a penny – although the threshold is lower than for Plan 2, and isn’t far from the minimum wage, so more will be repaying overall.”
However, it is those on average salaries who could feel the biggest squeeze. “It’s graduates on more typical salaries who could end up with bigger bills,” Ms Coles added. “The key factor for many people is that the loans aren’t wiped out for 40 years.”
Family Considerations
The changes also pose a thorny question for parents and grandparents: should they step in to help? Under the previous system, many families gambled on debts being written off after 30 years. Now, with more graduates expected to repay in full, the incentive to intervene has grown. Ms Coles said: “Under Plan 5, they’re more likely to repay in full and there’s a risk they could be saddled with repayments for the next 40 years. So overall they’re likely to pay more.”
She warned that carrying student debt for decades could affect major life decisions, including buying a home and saving for retirement. “It will factor into affordability calculations when they want to buy a property,” she said. “Some of them will be repaying this debt in their 60s, which means they won’t have the same freedom to super-charge pension contributions.”
However, she cautioned families against overstretching themselves to help. “If you remortgage or borrow money, it will end up costing far more than the initial outlay,” she said. Using savings or pensions could backfire later in life. “If parents spend their pensions, they need to calculate the impact on their retirement income… If grandparents spend their available cash, they need to consider how they would cover the cost of care.”
Instead, she urged families to plan early, suggesting long-term investing could help spread the cost. “It means anyone wanting to support their family through university should start making plans as early as possible,” she said.
