The forthcoming increase in the national minimum wage is set to improve incomes for many workers across the UK. However, graduates in non-graduate roles who occasionally work extra hours could find themselves crossing the earnings threshold for student loan repayments. This shift may present financial and career implications for those who have not fully established themselves in professional roles.
Impact of higher hourly rates
From April, the national minimum wage for those aged over 21 will rise by 6.7%, reaching a record high of £12.21 per hour. On paper, this is welcome news for many employees. Yet for graduates with Plan 1 student loans – who generally start repaying when earning over £25,000 annually – certain working patterns could push them above that threshold.
The Office for National Statistics (ONS) reported that the average number of hours worked per week in 2023 was 36.8. In many cases, a regular full-time schedule at the new minimum wage remains below the £25,000 repayment point. However, overtime or additional shifts can boost annual earnings sufficiently to trigger repayments. According to professional estimates, a graduate working just a few extra hours each week could see their salary edge over the threshold, leading to a 9% deduction on the portion of earnings above £25,000.
This extra payment, coupled with existing tax obligations, can create an effective tax rate of 37% on income over the threshold. For new graduates trying to build financial stability, these additional outgoings may limit options such as relocating for better career opportunities or saving for future goals.
Challenges for graduates and employers
The rise in the minimum wage comes at a time when entry-level wages are already on the ascent, putting pressure on businesses to increase pay across their workforce. This can lead to a knock-on effect in which more experienced employees request higher salaries, creating further cost pressures. In some instances, companies may respond by offering fewer entry-level positions or reducing staff.
Meanwhile, prospective students could reconsider the value of higher education, given the increasing cost of tuition fees. Recently, it was announced that these fees will rise to £9,525 per year, adding another financial consideration for those uncertain about their long-term earning potential. For many, the reality is that a university degree does not automatically guarantee higher wages, yet it can result in a substantial loan balance and accompanying repayment obligations.
Further adding to concerns is the scheduled increase in employers’ national insurance contributions from April. This could affect younger workers and new graduates by making entry-level hires more expensive overall. While some might still find opportunities to advance within their organisations, others could experience more difficulty securing their first job or moving into roles aligned with their qualifications.
Ultimately, the combination of rising wages, growing tuition fees, and the potential for increased national insurance costs may place additional strain on recent graduates. Many will need to carefully calculate whether occasional overtime is worth crossing the loan repayment threshold, taking into account both immediate financial benefits and long-term career goals.
These developments underscore the importance of informed budgeting and tax planning for clients entering the workforce. Understanding how even small changes in working hours could prompt student loan repayments can help graduates avoid unexpected deductions from their pay packets. While higher hourly rates may be beneficial overall, the broader picture includes several factors that new and future graduates must consider as they build their financial foundations.
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