The government has been accused of adding a “stealth tax” onto graduates’ earnings in England by freezing the threshold at which they pay back student loans.

Students who finished courses between 2012 and 2023 will continue to begin paying back their loan when they earn more than £29,385, the Treasury confirmed in its Autumn budget on 26 November.

This level for “Plan 2” graduates will be frozen for three years from April 2027. The Treasury said this is to ensure the sustainability of the student loan system.

“Graduates generally benefit from higher earnings, and ensuring that they repay more of their loan is fair for those workers who have not gone to university,” it added. “This does not increase the level of debt for these graduates.”

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Chancellor Rachel Reeves also announced that the national living wage will be increased by 4.1 per cent from April 2026. With future increases forecast, that the national minimum wage will be just £400 below the student loan repayment limit by 2030.

Laura Trott, the shadow education secretary, criticised the decision as a “disgraceful betrayal of a generation”.

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“Labour are robbing young people of their futures,” . “Youth unemployment is out of control, debt-trap degrees are leaving graduates with no prospects, and now Labour have launched a £7.4bn tax raid on them by freezing student loan thresholds.”

finance expert Martin Lewis called it a “stealth tax”, adding: “Freezing thresholds while average earnings rise means people pay a bigger proportion of their income in tax.”

The OBR has estimated that the freeze to the threshold will raise around £400 million a year for the public purse “as a higher portion of income is subject to repayment and a higher interest rate”.

Elsewhere, released on 27 November show that the average full-time undergraduate tuition fee loan paid to students in England fell to its lowest level since 2016-17.

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At £8,210 for 2024-25, it was also below the average amount paid by Welsh students for the first time.

The data also show that the average maintenance loan paid to full-time students in England fell by 4 per cent to £7,410. This also marked the first time that the loan in England was below both Wales (£8,150) and Scotland (£8,330) at the same time.

More than 7 per cent of all full-time loan borrowers took out only a tuition fee loan and did not apply for maintenance support – the highest percentage since 2015-16.

Provisional figures for 2024-25 indicated a further 4.8 per cent reduction in the take-up of loans for postgraduate doctoral study but the number of loans for master’s study remained constant at 80,100.

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As part of the budget-setting process, the tuition fee cap for the next two academic years was also confirmed at £9,790 in 2026-27 and £10,050 the following year. The value of new maintenance grants was set at £1,000 for the most disadvantaged students who will only qualify if their household income is below £25,000. 

Adjusting repayment and interest thresholds is seen as In opposition, education secretary Bridget Phillipson made a promise to graduates that they would pay less under a Labour government.

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tom.williams@timeshighereducation.com