Student debt repayment changes – what you need to know

As university students get stuck into a new year, both they and their parents will be acutely aware of what the next few years are going to cost.

In the case of tuition fees and a portion of maintenance costs, this can be covered by loans, so the graduate can deal with the cost later.

However, the maths around student loans has changed dramatically for anyone who’s started their studies since last September.

New student repayment changes – what you need to know

The threshold income for making repayments has been cut for new students to £25,000. The length of time before the outstanding debt is written off has also been lengthened from 30 years to 40 years.

This more than doubles the proportion of graduates paying their debts off in full – around two thirds of them will now pay them off compared to just under a third before.

Plenty of students will likely need to work alongside their studies in order to cover some of their living costs.

A maintenance loan will go some way to help cover living costs, but this will depend on their household income. However, even if they get the full loan, it has fallen way behind rising prices.

This means most families will still need to step in and cover the rest of their living costs.

So, is the cost still worth going to university?

Currently, a three-year degree in England, including living costs and tuition fees, costs an estimated £67,500.

This significant sum might leave some wondering whether it’s all worth it?

While the cost seems huge, statistically speaking, on average, the answer is yes.

ONS data released in June showed the average graduate earns £6,500 a year more than a non-graduate during their career.

Over a 45-year career, this could add up to £292,500.

The latest edition of the HL Savings & Resilience Barometer (July 2024) found that those with degrees were more likely to have enough savings to own their own home. And also be more likely on track for a better retirement than those without.

The fact that this financial investment is likely to pay off over the years doesn’t help right now. But it means it’s now even more important to start off as early as you can.

This isn’t personal advice. ISA and tax rules can change, and their benefits depend on your circumstances. If you’re not sure what’s right for you, ask for financial advice. Remember, all investments can rise and fall in value, so you could get back less than you invest.

Planning for the future – what can you do?

If your children are planning to go to university, the earlier you plan, the better.

One popular home for any investments for children is the Junior ISA (JISA).

With a JISA, you can put aside up to £9,000 a year and it will grow tax free until they can access it at 18.

By tying this money up, you can make sure they don’t dip into it earlier in their childhood, and still have what they need when they get to university age.

If paying into a JISA seems like a stretch at expensive times in their childhood, you can ask grandparents if they can step in while finances are tight. This can help give their grandchildren a real head start in their adult life.

It might seem like an awful lot of money for them to get through over just three years, but it’s an investment that’s likely to pay off for the rest of their lives.