Martin Lewis has listed some big changes to student loans and advised on just how much of an impact it will have on future students' finances, as student loans look set to double from September 2023. The Money Saving Expert spoke recently on ITV's Good Morning Britain where Susannah Reid asked him about "the biggest change to English student finance in a decade".
Dubbing it more of a long-term cost change rather than a simple increase in tuition fees, he told his co-host - and viewers at home - that there will be three main changes coming in for new starters in England in September and added that those already at university will not be affected by the changes.
He went on to say that those already at university will remain on 'Plan 2 loans' while the new loans would be known as 'Plan 5 loans'. Speaking on the episode on Wednesday, May 3, he said: "Now, the three big changes - two are negative for students, but good for the taxpayer one could argue.
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"So that's the balance, it's about whether we swing the pendulum towards the taxpayer paying or towards the individual paying. And this is certainly moving it towards the individual paying."
The three changes, the Money Saving Expert says, will impact how much of their loans students will repay. They are as follows:
1. Students will start repaying their student loans when they earn above £25,000
Martin Lewis says: "That's lower than the current threshold, which means you'll pay, on the same income, you'll pay more back each year."
2. You will now stop repaying your loan after 40 years
Martin Lewis says: "The really big change is currently you stop repaying the loan after either you've paid it all off, which most don't, or [after] 30 years. It will now be 40 years, which means for all intents and purposes, the vast majority of students, well graduates, will be repaying their loans for their entire working lives.
"It effectively becomes a form of graduate tax."
3. Interest rate will be lowered
Mr Lewis says: "The third change is the interest rate, which is currently above inflation - RPI (Retail Prices Index) plus 3% - will be lowered, so it's just inflation. This means in real terms you don't pay any added interest."
Many graduates will 'pay double' under the new system compared to the current one
The Money Saving Expert went on to say: "But this is the stat that people need to understand. Currently, on the current system, the state pays 44p in the pound and the student pays 56p in the pound on average.
"Under the new system, the state will pay 19p in the pound and the student or graduate will pay 81p in the pound on average. Now on my calculations, what this means is, in truth, many graduates will pay double under the new system, than they do under the current system.
"We are basically moving money out of the taxpayer funding education, and the individual will contribute a lot more, which is what will work in practice as a 9% graduate tax above earnings of £25,000 for 40 years for most people."
Other key points to know for anyone starting uni in September
On his website, MoneySavingExpert.com, Martin Lewis has created a guide of 14 key 'need to know' facts if you, or someone in your family, is applying for student finance. The first point in the list talks about how you won't have to pay a penny upfront to go to university, but parents are expected to contribute to your uni living costs, if you don't qualify for a full maintenance loan - this is mean-tested and so parents are expected to fill any shortfall.
In another point, he calls a student loan "the 'best' form of debt you'll ever take (so much so that we don't think it should be called a debt)", adding that "there's no interest charged in real terms and the loan only ever gets repaid if you're earning enough to be able to afford it.. If you do decide to refuse the loan and pay upfront, you could be left £10,000s worse off".
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