Graduate unhappiness with retrospective changes to the Plan 2 student loans has erupted after the Government made changes to repayment thresholds in the November

Student loans come in a range of different plans, from the early Plan 1 loans to Plan 5 loans for those starting education after 1 August 2023 in England.

The focus of ire has centred around Plan 2 loans, taken out for undergraduate courses and Postgraduate Certificates of Education (PGCE) since 1 September 2012 in Wales and between 1 September 2012 and 31 July 2023 in England. But the issue affects all the different plans in certain ways.

The problem has now raised uncertainty among parents who have children soon to depart for higher education, or those looking to the longer-term future and whether they can (or should) make plans to help their children pay the fees.

Depending on where you live your child will be subject to different plans. Students in higher education in England will now start on Plan 5 loans which charge 3.2% retail price index (RPI) after graduation. The current repayment threshold for these is £25,000 annually, £2,083 monthly or £480 weekly of pre-tax earnings.

Importantly, it is not the ‘nationality’ of the student but rather the home residence of the family home that matters. Plan 1 still affects Northern Ireland residents, while Plan 2 affects Wales. Scottish students are subject to Plan 4.

Should I pay my child’s fees?

For parents whose children are still some time away from higher education considerations, the most important step is to look at contributing to a long-term fund for their futures.

This can be done by saving through your own ISA or by setting up a junior ISA in your child’s name. The former method will give the parent more control over the money but could hamper their own long-term savings allowance.

JISAs offer a generous £9,000 a year allowance but once the money is in the pot it cannot be withdrawn by the parent. When the child turns 18 they will have full control over the money and do what they like with it.

Parents who have children nearing higher education age and decisions about their future education and careers might be in a position to help pay fees, but this is where the deliberations become more complicated because there are significant factors to consider.

Before starting it is essential to understand what plan your child would be affected by. The UK Parliament site has a good breakdown of this you can check to get started.

The majority of parents will see their children on Plan 5 loans which, while less onerous in terms of interest rates, still have a low repayment threshold in terms of earnings. Indeed the National Minimum Wage is growing to £12.71 per hour from 1 April 2026 for over 21s.

This is equivalent to £24,799.50 per year (based on 37.5 hour working week), putting the vast majority of graduates who have Plan 5 loans within a hair’s breadth of having to repay once they start a job post-university.

Once you have established what the loan terms look like, it is important to consider this withing your own financial plans. Would it affect your own long-term finances substantially?

It is essential to ensure in the first instance your own finances are on a sustainable growth path in order to prepare for a successful retirement. Tuition fees can run as much as £9,790 per year – a not insubstantial burden for some families especially if they have more than one child. Graduates on average leave university with more than £53,000 of debt.

Next, it is important to consider the child’s goals and what they intend to study. Degrees such as medicine and law have clear high earnings potential which means children will typically be able to pay down the loans in time.

But those who opt for careers that don’t pay such high wages could face paying their loans indefinitely – until they’re wiped at the 30-year mark.

It is critical to have an honest conversation with children about this and how you might be able to help them with the costs of higher education – and the realities of taking on significant student debts.

You needn’t have this conversation alone though. To get the most out of your long-term planning, from an early age or later, a financial planner can help you to model how best to help your children succeed with as small a financial burden as is possible for your family’s finances.