UK government considers cutting earnings threshold for student loan repayment – money.co.uk guidance for graduates with financial concerns

Following this weeks announcement that ministers are said to be planning to reduce the amount university graduates need to be earning before they start paying off student loans from £27,295 to £23,000; James Andrews, senior personal finance editor at money.co.uk offers up some insight and guidance for any recent graduates concerned that the proposed changes could financially impact:

“The potential consequences of this proposed change to the system looks set to hit those just starting out in their careers, struggling to find their feet in the post-COVID working world, and already dealing with low paid graduate and entry-level roles. 

“Reducing the threshold from £27,295 to £23,000 will result in graduates having to find an extra £386.55 a year.

“That said, there are some measures and tips that graduates can take into account and factor into their finances ahead of the potential changes being implemented; some of which are outlined below:

• Utilise graduate discounts / offers 

If you are a recent graduate, there are still ways to make the most of the student discounts that were afforded to you during your time at university. 

If your student email account is still active, you still have the option to purchase a three-year NUS card, allowing you to make the most of student discounts until 2024. Those with a card, which costs £24.99 for the three year subscription, can benefit from discounts across more than 350 businesses, saving money on eating out, clothing, health and fitness and even travel. 

Speaking of travel, another wise move graduates can make – particularly those likely to be travelling regularly – is to purchase a 16-25 railcard, which will offer ⅓ from the cost of many train tickets. A one year card costs £30, and a three year subscription will set you back £70. 

• Shop smartly & save on groceries 

After three years at university, your idea of ‘cooking’ may involve noodles, toast and heating up last night’s kebab in the microwave for breakfast. But, as you transition into graduate life, there are a vast array of ways to ensure you can provide yourself with nutritiously balanced and delicious meals on a budget. 

Stock up on the items you know you’ll use regularly, especially if you see a good deal on, and can save money buying in bulk. For example, it can work out cheaper to buy a whole chicken and roast it yourself at home using the leftovers in the week, rather than just purchasing breasts for one dish.

As a graduate you may be living alone, or getting used to cooking for yourself only, and the last thing you want to do when trying to cut costs is to buy food that ends up in the bin. By planning your meals in advance you know exactly what you will and won’t need during a supermarket visit. Use online recipes, such as Change 4 life, to help you create an affordable and versatile meal plan, and draw up your shopping list from that. 

• Assess your daily spending habits  

As much as no-one wants to take a deep dive into their finances, sometimes assessing your online bank statements with a fine tooth comb can prove extremely insightful when it comes to cutting down on unnecessary spending. 

Those morning coffees and pastries from the local cafe, weekly takeaway pizzas and countless trips to the pub with friends after work are completely deserved as a treat to yourself, but it’s worth asking yourself if the money you’re spending is affordable.

Try making a note of how much you’re spending every month or quarter at some of your favourite regular haunts, and if the amount shocks you, it might be an opportunity to cut back and save some money.

• Do not overpay student loans 

The new proposal to reduce the threshold of student loan repayments may come with the temptation to pay off loans early, or make overpayments to reduce how much is owed. 

This is a mistake. Student loans can’t make you bankrupt, aren’t on your credit rating and are cleared after 30 years. The amount you repay isn’t even based on how much you owe – the same amount is taken out of your salary regardless of whether you have £5 or £50,000 remaining on your balance.

More, if your income drops, so does your repayment – becoming £0 when your earnings fall below the threshold.

By contrast, having spare cash can be used for anything and everything you imagine. 

Other debts, loans or payments still fall due no matter what you earn, impact your credit report and can ultimately lead to county court judgments against you or even bankruptcy. Look to clear them first.

If you are debt free, think about saving or investing the money somewhere it can grow – giving you flexibility to cover unexpected costs or put towards something you want to save up for.