‘There is no chance I’ll ever pay off my student debt in full. Here’s why that doesn’t matter’
KWhen it came to my student debt, I took the same approach as millions of graduates in my situation: out of sight, out of mind.
When I finally graduated in 2022, after three years of undergraduate study and a year of graduate study, I knew that the amount I owed was staggeringly large, and with my meager first salary in the world of full-time work, that wasn’t a problem for now.
But after Rachel Reeves decided to freeze the threshold at which we would start paying back our loans, I finally decided to reopen my student finance account and see how bad the damage was.
When I graduated my debt was £84,541.66. I had only paid £310 in total and yet, thanks to interest on the loan, I now owe £87,264.76 – £2,700 more than I owed when I left university.
I am one of the millions of unlucky people who received a Plan 2 loan, believed to be the most punishing of the five loan plans.
Plan 2 was introduced in 2012, with loans given interest rates of up to the retail price index plus three percent; It increases as the graduate’s earnings increase. Graduates pay contributions of nine per cent on earnings above the £28,470 threshold.
This will be frozen at the April 2026 level (£29,385) for three years, rather than rising with inflation. It is planned to increase every year in line with the RPI from April 2030.
The education secretary has promised to “review” Plan B student loans but has refused to commit to changing the system due to widespread concerns about costs. The Chancellor was labeled a usurer by the NUS.
The level of student debt has risen sharply in recent years; the average graduate currently leaves university with around £53,600 in debt.
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But experts insist graduates who worry they’ll never be able to pay off their student debt shouldn’t worry. This was taken into account when establishing the student loan system, according to IFS economist Kate Ogden.
“I don’t think anyone should open their student loan statement and panic. These are not like regular loans.”
“From the beginning, it was expected that a large proportion of people would not repay their loans in full. This was designed so that high-income graduates would actually pay back more than they borrowed. And this would fund a sort of subsidy for low-income graduates who would never pay it back. They were never intended to do that.”
The government predicts that from 2024/25, around 56 per cent of full-time undergraduate students will make full repayments, more than double the forecast of 32 per cent for the 2022/23 cohort, due to reforms to loan repayments for new students.
With the help of the Social Justice Center, I decided to calculate how much I would need to earn to pay off my student debt in full.
The results were frankly laughable.
According to their calculations, I will need a post-graduation starting salary of £68,346; this is almost three times the average starting salary for graduates and significantly higher than the UK average salary of £39,039. This means I can only pay off my debt before the 30-year write-off limit.
To pay off my debt over the next five years I will need to get a job paying £207,773, which would put me in the top 100 earners in the UK.
The average graduate leaving university with £53,600 in debt is no better off, according to the Center for Social Justice, which models the outcome of debt in three different financial scenarios*. Under these simplified scenarios, there was no outcome where the debt was paid off without being written off after 30 years.
- A person graduating from university to work in a minimum wage job will only pay back £899.17, while their loan will be written off for £139,056.
- Someone starting on the average graduate salary of £24,800 will pay back £3,077.38, while their loan will be written off for £168,545.
- One person raises the average salary for a graduate after one year, then jumps to the average salary promoted after five and 10 years. They would repay £45,404.41 before the total debt of £177,512 was written off.
Ms Ogden added that many people would never expect to repay their loans, but that didn’t mean the loans wouldn’t impact their lives.
“Many people can still expect to make significant repayments on these loans,” he explained. “So even if they don’t pay back the debt in full, they will probably have repaid thousands of pounds over the next few decades.
“These refunds will have an impact on people’s living standards and take-home pay.”
Dan Lilley, youth director at the Center for Social Justice, said repayment terms are just one of many indicators that the education system needs to change.
He said: “Repayment terms in the inflated student loans system are insane, but they are just one of many indicators that our education system needs wholesale restructuring.
“For too long, without being honest about the labor market consequences or costs, we have pushed young people into expensive college degrees whether they suit them or not, damaging the value of those degrees in the process.”
He suggested greater investment in apprenticeships could go a long way to helping generations into work: “Not only are apprentices earning while they train, they are also earning an average of £5,000 more than graduates five years after graduating.”
Martin Lewis is among many experts calling for better financial education in schools and universities so that people making decisions about their future understand what they are getting themselves into.
He said the following in one of his posts: Money Saving Expert last month: “Even after all these years, we still tragically educate many of our young people about what we call debt, but we never educate them about debt.”
John Webb, head of consumer business at Experian, said: “Many young people take out complex, long-term student loans at 18 without fully understanding how interest is generated, how repayments work or what this means for their financial future.
“We’ve made progress on financial education in schools, but it’s nowhere near enough. Young people need to be equipped with a clear, practical understanding of borrowing, budgeting and how to protect their credit scores, especially as they enter a tougher job market.”
A government spokesman said: “We inherited the system of student loans, including Schedule 2, designed by the previous government. Threshold freezes were introduced to protect taxpayers and students as well as future generations of students and workers. The student finance system protects low-income graduates by determining repayments based on incomes and outstanding loans and canceling interest at the end of repayment terms.
“Since our election, we have been committed to supporting the aspirations of all who can and want to pursue higher education.”
*Economic and income-based variables make it nearly impossible for graduates to predict exactly how much they will pay off their student loans. These calculations were based on a simplified scenario in which the RPI averaged 2.4 per cent, matching the long-term forecast, and wages rose by two per cent a year, reflecting the Bank of England’s inflation target.
