Martin Lewis: Five things EVERYONE should know about English student finance 2024/25

There's a lot of nonsense spoken about student finance. Not only because its fundamentally misunderstood by millions, but also as the system has changed so often, even if you talk to someone in their second or third year at uni now, the way it works for them is different to you, never mind those who graduated a decade or two ago.

At the start of the 2023/24 academic year, we saw the biggest shake-up to student finance in England for a decade. On the surface the changes looked like a tweak, but in practice it increased the eventual cost of going to university by over 50% for many typical graduates. Of course, that's not what you want to hear, but it's a fact.

Yet my aim isn't to put you off going... I still believe if university is right for you, grab the opportunity. It can be life enhancing and often lead to increased earnings potential – but the fact the cost to you is more means it's worth a deep breath and a serious, practical look at whether it is right or not, or if there are other, better options.

My focus is on the personal not the political, what university will cost YOU – so you understand the impact on your pocket – and that is radically different to what you usually hear.

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

Students don't pay the university 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 should only start repaying after you leave university (which for you is defined as April 2027 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.

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 £65,000ish (it depends 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 2024 starters, the FULL annual loan is:

  • £8,610 if living at home.
  • £10,227 away from home.
  • £13,348 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 our Parental Contribution calculator which does it all for you.

Of course, some parents won't be able to afford to fill that gap – and you 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 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 loan isn't big enough. And this has got worse as the living loan has not been uprated close to the increase in inflation during the cost of living crisis (something I wrote to the Chancellor to try to get change on – I failed).

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 to think about it and understand it...

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 £40,000 and you repay £900 a year.
  • Owe £60,000 and you repay £900 a year.
  • 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 how much you borrow 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 (or don't take the full loan or have access to large amounts of spare cash), don't overly focus on the amount you 'owe'.

Instead, in practice what happens is you effectively pay an extra 9% tax on your income for 40 years. In simple terms (ignoring national insurance and personal allowance withdrawal – see how tax really works and income tax & NI calc for more), 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%
£125,140+ 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 – a measure of how quickly prices of all things are rising (frustratingly, the higher measure). It changes annually each September based on the prior March's RPI. That's likely to be far lower for the 2024/25 academic year than it has been, likely 3% to 4%.

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.

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' – meaning it can be changed at the whim of administrations.

You can take some reassurance from the fact the latest 'new system', like the previous ones, only impacts those who started after 2023, as that means that 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 does 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 under the new system which started in September 2023:

  • It lowered the repayment threshold, so all those above the threshold pay more each year – a bit like freezing tax thresholds, this means as people earn more, they pay more.
  • 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 inflation (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