**Graduates Facing ‘Student Tax’ on National Minimum Wage from April 2025 – London Business News**
Graduates across the UK are bracing themselves for a financial hit starting in April 2025, as they may be required to start repaying their student loans even if they are only earning the National Minimum Wage (NMW) of £12.21 per hour. This revelation comes from leading audit, tax, and business advisory firm, Blick Rothenberg.
Impact on Graduates
According to Robert Salter, a Director at Blick Rothenberg, the upcoming 6.7% increase in the NMW next year will likely push more graduates in non-graduate roles into the realm of student loan repayments. This means that even those in the lowest-paying jobs could be hit with additional financial burdens sooner than expected.
Salter explains, “Any graduate with a plan 1 student loan working 42 hours per week throughout the tax year could potentially earn around £26,660 annually. And let’s not forget about potential overtime payments, which would also count towards their earnings for student loan purposes.”
Financial Pressures
The student loan repayments, often likened to a graduate tax, can result in an effective marginal tax rate of 37% on earnings above the threshold. This includes income tax of 20%, employee NIC of 8%, and the 9% student loan charge. Coupled with other expenses such as rent, transport, food, utilities, and more, graduates may find themselves in a tight spot financially.
Salter highlights the challenges graduates face, stating, “The combination of a high effective tax burden and overall cost pressures can hinder many university leavers from pursuing the best opportunities. Without financial support from family or savings as a safety net, a sudden financial emergency could leave them in a precarious situation.”
Employment Challenges
Official statistics indicate that over a third of UK graduates struggle to secure ‘graduate level’ jobs upon graduation, with many facing a lack of entry-level positions in their chosen fields. The impending increase in the NMW could exacerbate this issue, as employers may feel compelled to raise wages across the board, leading to potential layoffs or reduced entry-level roles.
Salter raises a poignant question, “Is the pursuit of higher education and the accompanying debt worth it for aspiring students? While university can offer valuable experiences, it does not guarantee employment or future income levels, all while imposing a substantial financial burden on former students for years to come.”
As graduates navigate these challenging financial landscapes, it’s crucial to consider the long-term implications of student loans and the broader economic shifts impacting their financial stability.
