With the national minimum wage for over-21s rising by 6.7% in April to a record £12.21 per hour, some graduates working minimum-wage jobs could be forced to repay student loans sooner than expected.
Most student loans require repayments of 9% on earnings over £25,000 annually. While a full-time minimum-wage role won’t exceed this threshold, working regular overtime could. The Office for National Statistics reports that the average UK worker clocked 36.8 hours weekly in 2023. For a graduate earning the new minimum wage, fewer than six hours of weekly overtime would push their income over the repayment threshold.
This additional 9% deduction, on top of income tax and National Insurance, could see graduates paying an effective tax rate of 37% on earnings over the threshold.
These changes may make it harder for graduates to secure entry-level roles, as rising wages prompt companies to manage pay increases for experienced staff. This could deter some students from pursuing higher education, especially with tuition fees rising to £9,525 per year, as announced by Education Secretary Bridget Phillipson following the Autumn Budget.
Adding to the financial strain, the increase in employers’ National Insurance contributions from April is expected to disproportionately affect younger workers and new graduates.
Graduates juggling financial pressures and limited career prospects may need to rethink their options, balancing the potential benefits of higher education against the growing costs.
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