Nadia on... student loans

A few months ago, I decided to look at my student loan balance. It stood at around a whopping £48,600, just £1,000 less than I originally borrowed. Almost everything I had paid in the last six years had been paying off the interest. As an MP, I’m fortunate to be in the top 5% of earners in the country – a salary which I choose to partially give away to local causes – so my own repayments are manageable, but the number was shocking because it lays bare how badly the student loan system has been working for everyone else. Analysis shows that you now have to earn on average a salary of £66,000 before your repayments are bigger than the interest accrued on your loan. Given that the average UK salary sits at around £39,000, many graduates are paying into a system that continues to grow their debt through no fault of their own. 

I took out a Plan 2 student loan in 2016, when tuition fees had recently risen to £9,000 a year. Politicians reassured prospective university students at the time that repayments would only kick in above a certain salary and that whatever remained after thirty years would be written off anyway. What many didn’t know was how quickly interest would accumulate. While studying, all borrowers were charged the Retail Price Index (RPI), a measure of inflation which has been criticised for overestimating price increases, plus 3%. During the high-inflation years following the pandemic, some graduates saw record-high interest rates applied to their balances before they had even started repaying. After graduation, the rate varies with income, but even those earning under £28,470 have interest added at the RPI rate.

We also didn’t know that governments would freeze repayment thresholds, making graduates pay more in real terms over time. With the current government recently freezing the repayment threshold until 2030 for those who, like me, took out a Plan 2 loan, millions will now be forced to pay more each month during a cost-of-living crisis that is already pushing many people to the limit. We are a generation navigating a housing crisis that has made homeownership feel out of reach for most, with rents swallowing an ever-larger share of our pay. Many graduated into the economic uncertainty of the pandemic, only to be hit by the energy and food price shocks that followed. Jobs are harder to come by, and more young people are still living at home because the alternative is unaffordable. 

It is clear within this wider context that the student loan system is fundamentally unfair. Those who were able to pay their fees up front avoided accruing interest entirely. Whereas graduates who had no choice but to take out loans are seeing large deductions from their pay packets each month. To make matters worse, many borrowers are finding that their original loan balances have substantially increased, leaving them facing the prospect of repaying their debt for up to forty years. It was found last year that more than 150,000 people in the UK now have student loan debts exceeding £100,000, with one person owing £298,000. 

I have had many constituents write to me recently about student loans, explaining that the monthly deductions feel significant when the cost of everything keeps rising, or that it feels deeply unfair that the financial goalposts keep shifting. I agree with them and was pleased to hear that the Treasury Committee is launching a new inquiry to determine if the current system of university finance is fair for young people.

Because how can a fair system make it so that teachers, nurses, and social workers end up repaying more than their higher-paid peers? Or how can it be fair that the parental earnings threshold, which determines how much student maintenance loan you get based on your parents’ income, has been frozen at £25,000 since 2008? Why haven’t student maintenance loans for students in England risen anywhere near the value of inflation? And how is it fair that the repayment window for new graduates has increased from thirty years to forty years?

I’m also concerned about the growing individualistic narratives around student debt, as though it is simply a price people have to pay for their ‘personal investment’. This framing treats education as a transaction, rather than a public good that benefits our society as a whole. An educated society is healthier, fairer, sustains our public services, and produces the artists, scientists, and engineers who all of us depend on. From a purely economic perspective, we know that an educated population has higher rates of productivity.

If it were up to me, tuition fees should be scrapped altogether, universities would be funded through general taxation, and we would look at how existing student loan debt could be written off. Figures show that students in England graduate with an average debt that is higher than in any other developed country.  We know this is a political choice because many European countries offer higher education for free. In Germany, public universities charge around £115 a year in administration fees. In France, tuition at public universities is capped at £186. In Denmark, higher education is entirely free, with students offered a monthly living grant instead. Closer to home, Scottish students attending university in Scotland are also entitled to free undergraduate education. 

At the very least, the government must reverse the freeze on student loan repayment thresholds and reform interest rates so balances do not grow faster than repayments, particularly for those on lower and average incomes. We shouldn’t expect graduates to surrender a significant portion of their salary for decades, especially at a time when so many are already struggling.

nadiawhittome.org