Graduates could be caught by Student Loan repayments from April 2025, even when they are only earning the National Minimum Wage (NMW) of £12.21 per hour, say leading audit, tax and business advisory firm, Blick Rothenberg.
Robert Salter, a Director with the firm, said. “With the NMW due to increase by 6.7% in April 2025, it is inevitable that more and more graduates in non-graduate jobs will become liable to student loan repayments, even those in the lowest paying jobs.
“Any graduate with a plan 1 student loan working 42 hours per week over the course of the tax year would earn approximately £26,660 per annum, and this figure ignores any extra payments they might receive such as overtime, which would also be earnings for student loan purposes.
“Student loan repayments, which are in effect a graduate tax, mean that those students earning in excess of the threshold will have an effective marginal tax rate of 37% on their earnings above the threshold. That is an income tax of 20%, employee NIC of 8% and the 9% student loan charge.”
He added, “On top of this, graduates may have the additional cost of rent, transport, food, utilities and other financial pressures. The combination of a high effective tax burden and overall cost pressures means that many university leavers will also struggle to move out of their home areas to find the best opportunities. If they have no monetary support from family or savings as a safety net, they may be in an extremely difficult position if a financial emergency arises.
“Official statistics suggest that over one third of UK graduates struggle to find a ‘graduate level’ job on leaving university. Some find that there is a lack of entry level roles in their chosen field. The increase in NMW could in part be driving this, as if employers increase the wages of their lowest paid employees, they will be under pressure to increase wages across the board, which could quickly become unaffordable. This has caused some employers to lay off workers or reduce the amount of entry level roles they offer.
“Would be students may be considering whether going to university and the potential high-level of debts which this involves worth it. While studying can be a great experience for many students, it does not guarantee work or future levels of income and clearly comes with a significant tax hit for ex-students which will stay with them for many years.”
