Financial advisor Warren Shute explains everything you need to know about student loans and how best to support your children
The government overhauled the student loan system in 2023 with the introduction of Plan 5, and this remains the repayment plan for undergraduate students starting university in England from August 2023 onwards, so it will apply to all new starters in the2025/26 academic year.
Key features of Plan 5 (for 2025/26)
Repayment threshold: Students will begin repaying their loan once they earn over £25,000 a year. This threshold has been frozen until April 2027, and from then on is expected to rise with inflation.
Interest rate: Interest is charged at the Retail Prices Index (RPI) only. There is no additional interest based on income, making the system simpler and typically less expensive over time than older plans like Plan 2.
Repayment term: Loans will be written off after 40years, rather than the previous 30 years. This extended window will mean some borrowers, especially those with lower or average lifetime earnings, may not repay in full.
What counts as income: Repayments are based on gross income, not take home pay, and includes all taxable income (not just salary).This system means that many graduates will repay less per month, but may end up repaying for longer. It’s also worth noting that most graduates under Plan 5 are now expected to repay more in total over their lifetime compared to Plan 2 borrowers.
Should you pay your child’s tuition fees?
It’s natural for parents to want to support their children at university. But with tuition fees set at a maximum of £9,535 per year (and no confirmed plans to change this for2025/26), plus accommodation and living expenses, the true cost is significant. A key principle I share in financial planning is this: Take care of the Now, the Then and then Them.
This means, first secure your own finances, then your retirement, and only then consider helping others. You don’t want to be a financial burden on your children in later life. From an opportunity cost perspective, using your savings to cover your child’s tuition fees upfront may not be the most effective use of your money. In fact, the student loan system is designed to be repaid gradually and affordably, and unpaid balances are written off after 40 years.
Better ways to help
- Supporting with accommodation and living costs during university.
- Contributing to a Lifetime ISA to help them save for a first home.
- Helping with childcare or transport costs after graduation and when they start their family.
- The cost of a small monthly student loan repayment will often be far less burdensome than a large mortgage, car finance, or childcare fees, all of which typically carry less generous terms.
- Plus, taking out the student loan might instil a sense of responsibility, encouraging the student to value their education more seriously.
Application deadlines for student finance(2025/26)
New students must apply for student finance by 16 May 2025. Returning students must apply by 20 June 2025. Applications typically open in March, and it’s worth applying early to ensure funding is in place by the start of the term.