Martin Lewis: Five things all new English university starters should know

The 2023 academic year is about to start, and it'll see the biggest shake-up to student finance in England for a decade. The changes are both subtle and massive. On the surface they look like a tweak, in practice they will increase the eventual cost of going to university by over 50% for many typical graduates. I recognise that isn't what you want to read, and it's tough for me to write it too…

... as the last thing I want to do is put you off going. I still believe if university is right for you, you should go. University can be life-enhancing and often leads to increased earnings potential – but a higher cost means it's worth taking a serious, practical look at whether it is right or not, or if there are other, better options – and go into it with your eyes open.

Let's ignore here the huge political spittle that flies about student loans, that's a societal issue. My focus is on the personal, what university will cost YOU – so you understand the impact on your pocket – and that is radically different to what you usually hear. Be careful too of listening to past students' tales, even older siblings. How student finance works depends on when they started and where in the UK they are from.

My five rules below are written for first-time undergraduates who are resident in England starting university in September 2023. I've written separate help guides for those from elsewhere in the UK or those who started before September 2023.


This is just a brief summary – for the FULL details, see my expanded guides:

- Student loans 2023 – how they work in detail
- Is it worth taking the student loans 2023

These are best read by anyone who reads this guide and has questions. I suspect almost all of them are answered in those detailed guides.

1. The student loan price tag can be £60,000, but that's not what you pay.

Students don't pay universities or other higher education institutions directly. Tuition fees, typically up to £9,250, are paid for you by the Student Loans Company. Over a typical three-year course, the combined loan for tuition and maintenance can be over £60,000, but don't get overly hung up on that, as what counts is what you repay...

  • You only start repaying from April 2026 at the earliest.
  • Then you only repay if you earn over £25,000 a year. Earn less and you don't pay anything back.
  • You repay 9% of everything earned above that amount, so earn more and you repay more each month.
  • The loan is wiped after 40 years – whether you've paid a penny or not. This means many people will be repaying their student loans for most of their working lives.
  • There's no worry of debt collectors as it's repaid via the payroll. In other words, it's taken off what you earn before you get the money, just like income tax is. And the debt doesn't go on your credit file.

See full how the student loan is paid info.

2. There is an implied amount most parents are meant to contribute.

You are eligible for a loan to help with living costs – known as the maintenance loan. Yet for most under-25s, even though you are old enough to vote, get married and fight for our country, your living loan is dependent on family residual income, which for most people is a proxy for 'parental income'.

The loan received starts to be reduced from a family income of just £25,000 upwards, until around £58,000 to £70,000 (depending whether you live at or away from home, and whether in London) where it's roughly halved. This missing amount is effectively an unsaid parental contribution – as the only reason you get less is because your family earns more.

For 2023 starters, the full annual loan is:

- £8,400 if living at home.
- £9,978 away from home.
- £13,022 away from home in London.

To work out the parental contribution, just subtract the loan you're being given from that. Or far easier, use the Parental Contribution Calculator which does it all for you.

Of course, some parents won't be able to afford to fill that gap – and their offspring can't force them to pay. But at least knowing there is a gap helps you understand what level of funds are needed. And it's important students and parents have this conversation sooner so you can together discuss options to plug the hole.

While the media often focuses on tuition fees, I hear more practical complaints from students about the living loan – many find even the maximum isn't big enough. And this is only likely to get worse as the living loan has not been uprated close to the increase in inflation during the cost of living crisis.

So when deciding where to study, look at all the costs, transport and accommodation (will you get into halls?), as that's a key part of your decision.

3. The amount you borrow is mostly irrelevant day to day – it works more like a tax.

This bit is really important to understand, as frankly it turns the way you think about student loans on its head. So take your time.

What you repay each month after university depends solely on what you earn. It's set at 9% of everything earned above £25,000. To emphasise this point, for a graduate who earns, for the sake of easy numbers, £35,000...

- Owe £20,000 and you repay £900 a year.
- Owe £50,000 and you repay £900 a year.
- In fact, let's be ridiculous and say tuition fees have been upped to £1m a year, so you owe £3m+, you still ONLY repay £900 a year.

So as you can see, what you owe DOESN'T impact what you repay each month or each year. The only difference it makes is whether you'll clear the borrowing within the 40 years before it wipes.

It's predicted that 52% on the new loan system will clear their debt in full within 40 years, and 48% will be paying off their loan for the full 40 years. So unless you're likely to be a mid to high earner AND/OR don't take the full loan AND/OR are lucky enough to have access to large amounts of spare cash, just ignore the amount you 'owe'.

Instead, in practice what happens is you effectively pay an extra 9% tax on your income (not including national insurance) for 40 years. At current rates, it works like this:

Earnings Uni goers Non-uni goers
Up to £12,570 No tax No tax
From £12,571 to £25,000 20%  20%
From £25,001 to £50,270 29% 20%
From £50,271 to £125,140 49% 40%
£125,141+ 54% 45%

This doesn't make it cheap, far from it, but it does mean that all the talk of burdening students with debt may feel misleading. Instead, we're burdening graduates with something closer to a 9% extra tax – frankly it shouldn't be called a debt, it really doesn't work like one (I argue it should be renamed a graduate contribution system).

Another way to look at it though is the more you earn, the more you repay each month. So, financially at least, this is a 'no win, no fee' education.

4. Interest is added, but there's no 'real' cost to it, and not everyone pays it.

Student loan interest is set based on the Retail Prices Index (RPI) rate of inflation – the measure of how quickly prices of all things are rising. It changes annually each September based on the prior March's RPI. That's likely to be high for 2023/2024, but will hopefully drop substantially after that.

However, as your interest is set at just RPI inflation, in economic terms it means there's no real cost of the interest added to your loan.

To explain this, imagine if you borrowed enough to pay for 100 shopping trolleys' worth of goods at today's prices. You'll only ever, at most, repay whatever it costs to pay for the same 100 shopping trolleys' worth of goods in the future – not more. (See full how inflation-linked loans work.)

Yet the interest added isn't the same as what everyone repays. While many graduates may be charged interest, some won't actually PAY any interest at all.

That's because the interest only has an impact if you'd clear your initial borrowing in full over the 40 years before it's wiped. Many won't. And even of those who will, all but those who clear the loan in full over that time won't repay all of the interest added. So don't panic too much at the 'interest' accruing on your student loan statement.

5. The system can and has changed.

Student loan terms should be locked into law, so only an Act of Parliament can negatively change them once you've started uni – but they're not. And a few years ago we saw a very bad change imposed, though thankfully after much campaigning it was overturned.

Most of the past changes were about the repayment threshold (the £25,000) rather than bigger structural issues, and indeed I would view the repayment threshold as 'variable' – it can be changed at the whim of administrations.

You can take some reassurance from the fact this new system only impacts new starters, as that means governments are wary of major systemic retrospective negative changes. So big bad changes for individuals once they've started are unlikely (though not impossible). Even so, the last of my need-to-knows has to be the caveat of 'unless things change'.

Why will the new system cost so much more for many?

The cost of a student going to university has long been split between the state and the individual (paid in the years after they've studied). The Government decided to swing the pendulum even further towards the individual and away from the state with three big changes for 2023 starters.

  • It lowered the repayment threshold, so all those above the threshold pay more each year.
  • Most importantly, it extended the maximum time you repay for from 30 to 40 years. This has a huge impact.
  • It did one positive change – the rate of interest added has been reduced to RPI (it used to be up to RPI + 3%), though that mainly benefits higher-earning graduates who'll clear the whole loan in 40 years.

So while under the old system, for each pound spent on higher education the Government funded 44p and the student 56p, under this new system, on average the Government will fund 19p and the student 81p.

Other important student guides to read:

How to budget as a student 
Best student bank accounts
Student checklist