STUDENTS starting university this year are being hit with some major changes to loans, in the biggest shift in a decade.
From September students in England will see three big changes to loans and how they're paid back.
It's important to note that the changes will only affect new starters, not those who are already enrolled at university, or who have already graduated.
This is because a new repayment plan is being added to the student finance system called Plan 5 loans.
If you’re starting your course on or after August 1 you will be on Plan 5, that's if you're starting an undergrad, a post grad, or you take out an advance learner loan.
One of the changes is to the amount a graduate can earn before they have to start paying their loan back.
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Also changing is the number of years you have until the debt is wiped by the government.
The final change is regarding the amount of interest added to the loans over time.
Below we explain each of the changes hitting students in September and how you'll be affected.
When loans will start to be re-paid
Currently for those who graduated or will graduate post 2012 and are on a Plan 2 loan, student loans begin being paid back when they start earning £27,295.
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They pay 9% of everything earned over this and interest starts accruing from the date the loan is taken out.
But, from this academic year the amount is going down to £25,000 – essentially they'll likely have to pay it back sooner than before.
It equates to £480 a week or £2,083 a month, before tax and other deductions.
This means a graduate earning £30,000 would be £5,000 above the threshold and will repay 9% of that – around £450 a year.
Under the old system graduates earning the same amount would be £2,705 above the threshold and at 9% this means you'd pay £243 a year.
It means that the amount new students will be paying annually has almost doubled compared to previous graduates.
If you earn less than £25k a year then you won't have to start paying back your loan until you exceed that.
When loans are wiped
Under the current loan repayment rules, the debt is wiped after 30 years from the April after you graduate.
That's if you haven't already paid off all of the loan yourself during that time.
But the new Plan 5 terms will see the debt cancelled after 40 years.
It means that the majority of graduates are set to be paying off the cash for the length of their working lives.
Consumer champion Martin Lewis has previously referred to the new system as a form of "graduate tax" essentially.
Interest rates on repayments
The final change hitting students is the interest added to your loan over time – and this one isn't entirely bad news.
Interest on student loans is added from when the first amount is paid either to the student or their university, until the loan is repaid in full or written off.
The interest rate is set at the start of each academic year and is linked to the rate ofRPI (retail price index) inflation.
Under Plan 2 loans, which is the current system for graduates, loans are repaid at this rate plus another 3% on top.
But for new students, the interest rate will now just be set at RPI only.
This means the amount you owe increases over time but only by about as much as the price of retail goods and services.
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Essentially, new students won't be paying added interest, just the RPI rate.
For more information on student loans including how much you can get, how much tuition fees cost and how to apply see our handy explainer.
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