The financial specialist claimed that students need to be aware of what is planned
People who finished university within the last 15 years will face higher amounts of cash being taken from their pay slips if new ‘freeze’ plans are to go ahead. Former graduates who have well-paid roles might end up taking less home each month under the planned changes.
In a post on X, Martin Lewis declared these plans by the UK Government as a “breach of natural justice”. He claimed that, in short, people who currently have a Plan 2 loan “will repay more” if the current threshold is “frozen”, as per the Chancellor’s decision.
The finance expert explained: “When you freeze a tax threshold, as average earnings [and inflation] are rising, people have more earnings above the threshold. Therefore, they pay a greater proportion of their income in tax.
“The repayment threshold for Plan 2 student loans works in exactly the same way. When you freeze it, as people have more earnings above the threshold, they will repay more.”
Martin suggested that, by 2030, former graduates could be paying roughly £250 a year more than they are currently. He went on to claim that the repayment of Plan 2 students’ education loans could be likened to a “graduate tax”.
What is a Plan 2 Loan? Does this affect me?
Plan 2 student loans apply to English undergraduate students who started their courses anywhere in the UK between September 2012 and July 2023. Welsh students who started courses since September 2012 will also be on the Plan 2 repayment system.
The loan is usually cleared 30 years after the April you leave your course. The earliest a Plan 2 loan will be wiped will come in April 2043 (for those who finished in 2012/13 and entered repayment in April 2013).
These are different from Plan 1 (pre-2012) and Plan 5 (post-2023) loans, which have different repayment terms and thresholds. People can work out what student loan they may be repaying here.
What is the Plan 2 ‘threshold freeze’?
Posting on the MSE site, Martin explained the changes that are coming for graduates. He said: “The main income tax thresholds haven’t moved since 2021, while at the same time we’ve had high inflation, which has pushed up earnings.
“That means people on the same equivalent incomes pay a greater chunk of it in tax, as more of their earnings are above the thresholds. It also means some graduate earners are reaching the higher 40% tax threshold at an earlier point in their careers than they would’ve otherwise.”
Martin gave an example of how someone who has a Plan 2 loan might be charged on their payslip in the future, even with annual salary rises between now and 2030:
- Now: Earn £28,400, that’s below the £28,470 threshold, so you repay nothing.
- April 26: Pay rises to £29,300, below the new £29,385 threshold, so repay nothing.
- April 27: pay rises to £30,200, above the frozen £29,385 threshold, repay £73/yr.
- April 28: pay rises to £31,100, above the £29,385 threshold, repay £154/yr.
- April 29: Pay rises to £32,000, above the £29,385 threshold, repay £235/yr.
- April 30: pay rises to £32,900, above the £29,385 threshold, repay £316/yr.
For more information, read the full post on Martin’s website here. If you are concerned, please seek financial advice which applies directly to your own personal situation, as some recommendations may or may not apply.
