More student loans misery for DfE’s press office

The Guardian reports that UK graduates living in Germany, Belgium, and possibly other European countries have been told their student loan repayments will increase significantly from April.

Not because they’re earning more – but because the government has slashed the salary threshold at which repayments kick in.

According to the paper, the Plan 2 overseas repayment threshold for Germany is being cut from £28,470 to £23,510.

One graduate was apparently told their monthly repayments would jump from £213 to £251 – an extra £456 a year – despite their salary staying exactly the same. On forums, it reports that some graduates say their repayments will almost double.

Fair play to Rupert Jones for keeping the student loans story going. In a month when Martin Lewis has told Rachel Reeves that changing the deal on Plan 2 loans was not “a moral thing to do”, graduates pop up daily to say they were victims of government “mis-selling”, and the National Union of Students has called Reeves a “loan shark”, this is probably the last thing that DfE’s press office needed this evening.

So what is actually going on?

Over the threshold

Almost nobody knows about the overseas threshold system until it hits them personally.

If you live in the UK with a Plan 2 student loan, you know the deal – you repay 9 per cent of everything you earn above a certain threshold.

That threshold is currently £28,470, and Reeves announced a freeze for three years in the budget – controversial because freezing the threshold while wages rise means more of your pay becomes subject to repayment each year.

But if you move abroad, something different happens – you don’t use the UK threshold.

Instead, the Student Loans Company (SLC) assigns your country its own threshold, supposedly reflecting the local cost of living.

Germany currently has the same threshold as the UK – £28,470 – but from April, according to what borrowers are being told, it’s dropping to £23,510. On Reddit and MoneySavingExpert forums, the Guardian reports that graduates in Belgium are being told the same figure.

And this isn’t just a Plan 2 problem. One graduate quoted has a Plan 4 loan – they studied in Scotland – and their monthly repayments are being hiked from £84 to £127. The overseas threshold system applies across loan types, which means graduates from Scotland, Wales, and Northern Ireland can be caught by exactly the same mechanism.

The full picture remains unclear – the Department for Education (DfE) declined to confirm which countries have had their thresholds cut or increased, or how many graduates would be affected. It intends to formally announce the 2026–27 overseas thresholds in April, by which point the changes will already be taking effect.

I expect that most years when this has happened, very few will have noticed. But this is very much not most years.

Show your working

Take a Plan 2 graduate living in Germany and earning €47,000 a year.

The SLC first converts your salary to pounds using an average exchange rate published by HM Revenue and Customs (HMRC) – at the current rate of about 0.85, your €47,000 becomes roughly £40,000.

Then they subtract the threshold for your country from your converted salary, and you repay 9 per cent of whatever sits above that line. Under the current £28,470 threshold, that’s £40,000 minus £28,470, leaving £11,530 above the threshold – so 9 per cent of £11,530 is about £1,038 per year, or £86.50 per month.

Under the new threshold of £23,510, the maths shifts. Your salary hasn’t changed, and the conversion rate hasn’t changed, but now you subtract £23,510 from £40,000, leaving £16,490 above the threshold. Nine per cent of £16,490 is £1,484 per year – that’s £446 more than before, purely because the threshold moved.

Lost in conversion

The technical machinery behind these thresholds involves two different economic concepts getting mashed together in ways that can produce counterintuitive results.

The SLC says overseas thresholds are based on the cost of living in each country, measured using something called the Price Level Index published by the World Bank.

It’s derived from purchasing power parity (PPP) data – essentially, how much stuff you can buy with your money in different countries. The idea is that if a country is cheaper to live in than the UK, its threshold should be lower, because you need less income to achieve the same standard of living.

The Price Level Index feeds into banded GBP thresholds shared across groups of countries, rather than producing a bespoke figure for each one, which are then applied to incomes converted into pounds using exchange rates.

But while the threshold is set using price-level data, your salary is converted using exchange rates – so you’ve got a PPP-based threshold being applied to an exchange-rate-converted income. If those two measures move in different directions, which they often do, the results can be… jarring.

These thresholds are recalculated every year and take effect on 6 April. The government hasn’t formally published the 2026–27 overseas thresholds yet, but borrowers are apparently already being told by the SLC what their new repayments will be.

If Germany’s threshold is indeed dropping by nearly £5,000, it implies the government’s data suggests Germany has become significantly cheaper relative to the UK – which, as graduates have pointed out, seems counterintuitive.

German inflation was 2.1 per cent last month, while UK inflation sat at 3 per cent, and nobody living in Germany seems to have noticed the cost of living plummeting.

The whole system is buried in the Education (Student Loans) (Repayment) Regulations 2009, which authorise the secretary of state to determine overseas repayment thresholds administratively. The regulations don’t set the actual country-by-country figures – they just allow the government to decide them.

That means the thresholds can be changed each year without new legislation and without parliamentary approval – what feels to borrowers like a significant change to their loan terms is, legally speaking, just an administrative recalculation of a variable parameter that was always subject to annual adjustment.

Ability to pay

The most basic objection is practical – your salary hasn’t changed, your living costs haven’t fallen, but your student loan repayments have just jumped by hundreds of pounds a year. You made decisions about where to work, what salary to accept, and how to budget based on what you were paying, and now those sums no longer add up.

Most graduates will not have had a scooby that the system even existed until they moved abroad and discovered their repayment threshold was different from the UK one.

The mechanics are buried in guidance pages that most borrowers never read, and finding out your repayments are jumping because of an annual recalculation using World Bank price indices – under regulations that permit all of this without parliamentary scrutiny – feels like being caught out by small print you never knew was there.

The logic doesn’t hold up well under scrutiny either. The Guardian quotes one borrower saying Germany:

…isn’t cheaper to live in, so they should raise the UK threshold, not reduce Germany.

In other words, if the relative price data shows Germany getting cheaper compared to the UK, maybe that says more about the UK getting more expensive than about Germany becoming affordable – and lowering the German threshold rather than raising the UK one feels like a way of extracting more money from overseas graduates specifically.

The minimum wage comparison makes it worse. The Guardian notes that the new £23,510 threshold is actually below what a full-time worker on Germany’s minimum wage would earn – that’s €28,116, or about £24,500.

Someone earning the legal minimum in Germany, doing a job that in the UK would not trigger student loan repayments at all, will now be making repayments – quite the outcome for a system supposedly designed (and sold) around graduates’ ability to pay.

We inherited this

The government spokesperson quoted talks about inheriting the system from the previous government – an excuse used by all governments that both feels more inadequate the further you get from an election, and impossible to maintain by the time of the next election.

The statement also trots out the usual stuff about protecting taxpayers, and maintaining the principle that repayments are based on income – none of which actually addresses why Germany’s threshold is being cut so dramatically, or whether the price-level data being used accurately reflects what it costs to live there.

For the UK nationals living overseas with student loans in repayment, it’s a system where the rules can change substantially with minimal notice, based on data and methodology they have no visibility into and no ability to challenge.

Whether or not the technical calculation is correct, the experience of discovering your repayments have jumped because someone at the SLC decided your country got cheaper feels less like a fair system and more like a trap. Another nail in the system’s coffin, I’d suggest.