Who Really Pays for Your Degree? 97% Falls on You

TL;DR

Student loan taxpayer contribution UK has collapsed to just 3% for post-Covid students, according to new research from the Institute for Fiscal Studies. This means graduates who started university in 2022-23 will bear 97% of their higher education costs themselves - a dramatic shift from when taxpayers covered most university funding. Here’s what this means for your degree and your future repayments.

The Number That Changes Everything

Here’s a statistic that might shock you: if you started university after the pandemic, you’ll pay for almost your entire degree yourself.

The Institute for Fiscal Studies published their annual report on education spending earlier this year, and buried in the data was a striking finding. For students who began courses in 2022-23, the student loan taxpayer contribution UK has shrunk to approximately 3%. Graduates will repay the other 97%.

This is not how university funding was supposed to work. When tuition fees were introduced and then tripled, politicians talked about graduates making a “contribution” to their education. Somewhere along the way, “contribution” turned into “almost everything.”

And if you’re thinking about starting a degree now, understanding this shift could change how you plan your education and career.

What Is the Student Loan Taxpayer Contribution UK?

When you take out a student loan, the government lends you money upfront. You then repay it gradually through your paycheck once you’re earning above the threshold - currently £29,385 for Plan 2 graduates.

The “taxpayer contribution” is the portion of that lending that never gets repaid. In theory, some graduates earn less over their lifetime, some loans get written off after 30 or 40 years, and some interest subsidies exist. Taxpayers cover these costs.

For years, policymakers assumed this would be a significant chunk - perhaps 40-50% of total higher education costs. But the numbers have shifted dramatically.

According to the IFS research, recent threshold freezes mean “the long-run cost of issuing loans will be negative, with graduates repaying more than they borrowed.” That’s right - for some cohorts, the government actually expects to profit from student loans.

How We Got Here: A Brief History

Understanding the student loan taxpayer contribution UK requires looking at how dramatically the system has changed:

Pre-1998: No tuition fees. Taxpayers covered university costs entirely. Students got maintenance grants (free money) to help with living costs.

1998: Labour introduced £1,000 annual tuition fees. Maintenance grants replaced with loans. First shift of costs to graduates.

2006: Fees rose to £3,000. Income-contingent loans introduced - you only repay when earning above the threshold.

2012: Coalition government tripled fees to £9,000. Plan 2 loans began. Interest rates increased. The share graduates were expected to pay jumped significantly.

2023 onwards: Plan 5 introduced with a lower repayment threshold (£25,000) and 40-year write-off period instead of 30. More graduates expected to repay in full.

2025 Budget: Threshold frozen at £29,385 until 2030. This latest change is what pushed the taxpayer contribution below 10% for recent cohorts.

Each step shifted more cost onto students. The 97/3 split represents the end point of a 25-year transformation in how we fund higher education.

Why Post-Covid Students Face the Harshest Terms

If you started university between 2020 and 2023, you’re in a particularly difficult position. Here’s why:

Higher Interest Rates Than New Starters

Plan 2 loans (for those who started 2012-2023) charge interest of RPI plus up to 3% - that’s currently around 6.2% for higher earners. According to GOV.UK, the higher interest threshold for Plan 2 is £52,885.

Meanwhile, Plan 5 students (starting from 2023) pay only RPI - currently about 3.2%. Their debt grows more slowly.

Threshold Freeze Compounds the Problem

The repayment threshold freeze from 2027-2030 means your effective tax rate goes up as wages rise but the threshold doesn’t. Every pay increase means more goes toward your loan.

For a graduate earning £40,000, the freeze means paying roughly £259 extra per year by 2029-30 compared to if the threshold had risen with inflation.

You Studied During Disrupted Years

Post-Covid graduates often had significant portions of their degrees delivered online, with limited campus access. Yet you’re paying the same fees (or more, after the 2025 increase to £9,535) as students who had full university experiences.

Source: Institute for Fiscal Studies Annual Report on Education Spending, 2025-26

What Politicians Are Saying

The debate over student loan taxpayer contribution UK has become politically heated.

Chancellor Rachel Reeves defended the threshold freeze by saying: “It is not right that people who don’t go to university are having to bear all the cost for others to do so.”

But here’s the problem with that argument - taxpayers now bear almost none of the cost for most graduates. The 3% figure flips the narrative entirely.

Martin Lewis, founder of MoneySavingExpert, has been particularly critical. He called the threshold freeze “a breach of contract - a breach of promise” and said: “I do not think this is a moral thing for you to do.”

The Department for Education stated: “This government is making fair choices to make sure the student finance system is sustainable - protecting taxpayers and students.”

Whether shifting 97% of costs onto graduates counts as “protecting students” is the question driving the debate.

What This Actually Means for Your Wallet

Let’s make this concrete. Here’s what the student loan taxpayer contribution UK shift means in real money:

Expected Lifetime Repayments (2022-23 Cohort)

According to the IFS, a graduate from the 2022-23 intake can now expect to repay approximately £55,800 over their lifetime - up from earlier estimates of around £52,600 before the threshold freeze was announced.

That extra £3,200 comes directly from the freeze decision.

Monthly Impact

On a £35,000 salary:

• You pay 9% of earnings above £29,385
• That’s £505 per year, or about £42 per month

On a £50,000 salary:

• 9% of £20,615 = £1,855 per year
• About £155 per month

These payments continue for up to 30 years (Plan 2) or 40 years (Plan 5) - or until you’ve repaid in full.

The Interest Problem

Perhaps the most frustrating aspect is watching your debt grow despite making payments. At 6.2% interest, a £60,000 debt accrues £310 per month in interest alone.

If you’re paying £150 monthly on a £50,000 salary, your debt is still growing by £160 per month. This is why many Plan 2 borrowers won’t see their balance decrease for years - if ever.

Student Finance Remains Worth It (With Eyes Open)

Despite the shift in student loan taxpayer contribution UK, student finance still makes higher education accessible. Here’s the current funding available for 2025-26:

Source: GOV.UK Support with Living Costs 2025-26

The key difference from commercial debt:

• Repayments are income-contingent (you only pay when earning enough)
• They’re collected automatically through payroll
• Remaining debt is written off after 30 or 40 years
• It doesn’t affect your credit score like other debts

For many people - especially those from lower-income households - student finance opens doors that would otherwise be closed. The 97% figure is sobering, but it doesn’t mean university is a bad decision.

Pro Tip: The maintenance loan is means-tested, but tuition fee loans aren’t. Even if your household income is high, you can still access the full tuition loan. Speak with a UniStart advisor to understand exactly what you’re entitled to.

Three Myths About Who Pays for Higher Education

Myth #1: “The government subsidises most of your degree”

➜ Not anymore. For post-2022 students, the taxpayer contribution has fallen to just 3%. You’re funding almost everything yourself through future repayments. The system has quietly shifted from “shared investment” to “you pay, eventually.” Understand the full picture before making decisions.

Myth #2: “Interest rates are low because it’s a government loan”

➜ Plan 2 interest can reach 6.2% - higher than many mortgages. While Plan 5 rates are lower (RPI only, currently 3.2%), neither are the “cheap government loan” many expect. The interest structure is complex and often poorly understood when students sign up. Check the latest rates on GOV.UK.

Myth #3: “Your debt being written off costs taxpayers billions”

➜ For recent cohorts, the IFS now expects the long-run cost to be “negative” - meaning graduates repay more than they borrowed in real terms. Write-offs still happen, but they’re offset by those who overpay. The taxpayer “bailout” narrative doesn’t match the current numbers.

What Can You Actually Do?

If You’re Already Repaying

1. Check your plan type - Make sure you know if you’re Plan 2, Plan 5, or another type. This affects your threshold, interest rate, and write-off period.

2. Verify you’re not overpaying - According to GOV.UK, 643,000 borrowers were owed refunds in 2024-25. If your income fluctuates, you might be paying when you shouldn’t.

3. Don’t overpay voluntarily (usually) - Unless you’re a very high earner who will definitely clear your loan before write-off, extra payments might just mean paying more than necessary.

4. Contact your MP - If you feel the threshold freeze changes terms unfairly, political pressure is one of the few levers available.

If You’re Considering University

1. Go in with full knowledge - The student loan taxpayer contribution UK has shifted dramatically. You’re funding your education yourself, just with deferred payments.

2. Focus on graduate outcomes - With 97% of costs on you, the return on investment matters more than ever. Explore courses that lead to strong career prospects.

3. Consider all funding sources - Maintenance loans, grants for parents, disabled students’ allowance - there’s often more available than people realise. Learn about your options.

4. Multiple start dates give flexibility - Through UniStart, you can access courses starting in January, May, September, or November. This can help you plan finances around when works best for you.

FAQs

What is the student loan taxpayer contribution UK currently?

For students who started university in 2022-23, the Institute for Fiscal Studies estimates the taxpayer contribution has fallen to approximately 3%. This means graduates will bear 97% of higher education costs themselves through loan repayments. This represents a dramatic shift from earlier estimates of 30-40% taxpayer funding.

Why has the taxpayer contribution dropped so dramatically?

Several policy changes have combined to shift costs onto graduates: the threshold freeze from 2027-2030, higher interest rates on Plan 2 loans, and the introduction of Plan 5 with its 40-year repayment period and lower threshold. Each change increases what graduates repay over their lifetimes.

Does this mean my student loan makes money for the government?

For some cohorts, yes. The IFS noted that “the long-run cost of issuing loans will be negative, with graduates repaying more than they borrowed.” This applies particularly to higher-earning graduates on Plan 2 who face interest rates of up to 6.2%.

Are newer students on Plan 5 better or worse off?

It’s complicated. Plan 5 has lower interest rates (RPI only, around 3.2%), which means slower debt growth. However, the lower repayment threshold (£25,000 vs £29,385) and longer 40-year write-off period mean more graduates will repay for longer - and more may repay in full. Different earning profiles lead to different outcomes.

Should I still go to university given these changes?

The shift in student loan taxpayer contribution UK doesn’t change the fundamental value of education - but it makes the decision more consequential. With 97% of costs on you, choosing a course with strong career outcomes matters more than ever. The funding available still makes university accessible; the question is whether your chosen path offers good value for what you’ll eventually repay.

Take the Next Step

Understanding who really pays for your degree is the first step to making smart decisions about your future.

The shift in student loan taxpayer contribution UK means you need to go into higher education with clear eyes. That doesn’t mean university is wrong for you - for many people, it’s still the best investment they’ll make. But knowing the true cost helps you plan better.

👉 Download the UniStart app to explore courses with strong graduate outcomes and flexible start dates

👉 Request a callback from our advisors to understand exactly what funding you can access

“When I started UniStart, I wanted to help people navigate a confusing system. The fact that graduates now bear 97% of higher education costs makes understanding your options even more important. Don’t let the complexity stop you - but do go in knowing exactly what you’re signing up for.” - Radu Danila, Founder