Plan 2 student loan salary warning issued to millions of university graduates

English and Welsh university graduates in the 'Plan 2' student loan bracket will probably never repay their debts.

This is applicable to all students beginning their respective courses between 1 September 2012 and 31 July 2023, who must cough up 9 per cent of their income if they bring in more than £29,385 a year.

Debts are traditionally repaid each month from the following April after graduation - leaving nine or so months grace period for young adults to gain full-time employment.

If they have any outstanding student debt 30 years later, it's wiped and they can move on with their lives.

Now though, official data from the Department for Education has found that the silly interest rates on these loans is making it impossible for graduates to give back what they originally took (per The Financial Times).

Incredibly, some of the graduates with the highest repayment balances are smashing it on £100,000 salaries and still can't scratch the surface of their debt.

Founder of Rethink Repayment, Oliver Gardner, claimed that these figures highlight the need to 'fix the student loan system'.

"It makes no sense to run a student loan system where, unless you are among the top earners, you can never realistically expect to clear what you owe," he said.

Plan 2 student graduates can't keep up with the loan interest rates (Getty Stock Image)

Some sunshine is escaping the cloud cover though, as from this month, interest on Plan 2 users will be temporarily capped at 6 per cent until next summer.

And yet, Owen Dixon of Best Student Halls has warned that this doesn't achieve much in address the wider problems at play.

"A temporary interest-rate cap is better than allowing rates to climb further, but it shouldn't be mistaken for meaningful reform," he noted.

"If the Government accepts that the system needs reform, it now needs to address the underlying structure rather than continuing to adjust one part of it at a time."

Interest rates are being capped at 6 per cent for one academic year (Getty Stock Images)

Dixon went on to elaborate: "The 6 per cent cap is welcome in the sense that it prevents Plan 2 and postgraduate borrowers from facing rates as high as 7.1 per cent from September.

"The Government has also been clear that this is a short-term measure, introduced to protect borrowers from inflationary pressures linked to the situation in the Middle East. That context matters, because this was never presented as a full reform of student finance.

"But that is exactly why the bigger problem remains unresolved. For many Plan 2 borrowers, the frustration is not simply the headline interest rate. It is watching their outstanding balance continue to grow, sometimes even while they are making repayments each month.

"Interest can be added faster than some graduates are able to pay the balance down, particularly where repayments are relatively modest compared with the size of the loan. That can make the debt feel almost impossible to shift, even when somebody is doing exactly what the system requires of them. That is why I think the Government is still dancing around the fundamental issue. Capping the rate for one academic year offers some protection, but it does not address the wider question of whether the repayment system is fair and sustainable over decades."