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University graduates in England may have to repay their student loans while earning close to minimum wage under measures announced in the Budget.
Chancellor Rachel Reeves said on Wednesday that the salary threshold at which graduates on “Plan 2” loan schemes begin to repay their student debt would remain frozen at £29,385 for three years from April 2027.
Once students earn over this salary threshold, 9 per cent of their earnings are deducted to cover their student loans.
The news comes as the national minimum wage is due to rise 4.1 per cent next year to about £24,800. But future rises in the minimum wage could push some graduates on relatively low-paid jobs close to having to repay their student debt.
The Office for Budget Responsibility forecasts the NMW will rise to about £28,995 by 2030 — or approximately £400 lower than the frozen student loan repayment threshold.
The threshold freeze affects students on Plan 2 loan schemes who started their courses between September 2012 and July 2023.
The government is also freezing the interest rate thresholds on Plan 2 loan debt, which currently range from 3.2 to 6.2 per cent.
“Graduates generally benefit from higher earnings, and ensuring that they repay more of their loan is fair for those workers who have not gone to university,” said the Treasury. “This does not increase the level of debt for these graduates.”
The OBR estimated that the student loan threshold freeze would raise about £400mn a year in the medium term “as a higher portion of income is subject to repayment and a higher interest rate”.