UK student debt shake-up sends fresh £56,000 warning to university graduates
A new study suggests that university students may be priced out of key life milestones due to rising loan repayment costs.
Published yesterday, a report by the Intergenerational Foundation revealed that the cost of university education has shifted from the government onto students, creating a 'ticking time bomb' for young graduates and those aspiring to higher education.
"The burden of student loans has never been higher," senior researcher and report author Toby Whelton said in a press release. "By stealth and with minimal democratic scrutiny, successive governments have piled costs onto young graduates in the hope that nobody would notice."
Those particularly at risk are students who are under the Plan 5 student loans, which came into effect for anyone starting an undergraduate or PGCE degree on or after 1 August 2023.
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How much will graduates repay from their student loans?
The amount of student loan repaid depends on when a person went to university and the salary they earn.
Under Plan 1, which was in place before the infamous tuition fee rise from £3,290 to £9,000, the average graduate paid roughly £25,700 of their loans back before they were wiped out.
Whereas now, students entering university with Plan 5 loans repay an average of £56,240 over their lifetime.
For lower-income earners, those under Plan 5 will pay an average of £42,070, compared to £6,430 under Plan 1.
Meanwhile, recent reforms to Plan 2 - graduates who studied between September 2012 and July 2023 - will add £23,730 to the average graduate’s expected lifetime repayments.
The report also laid bare the reduction in government contribution to funding university education over the past years, revealing that contributions from the Exchequer has fallen from £26,600 for students beginning university in 2015/16 to £4,200 for current cohorts.
"Much has been made of high interest rates and rising outstanding balances, but these are symptoms of a more insidious and significant transformation: the withdrawal of government investment from what was always intended to be a shared-cost system," Whelton added.
"The worsening of student loan terms must be seen for what it is: the state drawing on the future earnings of young graduates to live beyond its means in the present."
The report suggests cutting the student loan repayment rate from nine to five percent for graduates on both Plan 2 and Plan 5 loans, arguing that this would allow graduates to save £16,000 in 15 years and £185,000 by retirement.
Responding to the issues raised in the Intergenerational Foundation report, a spokesperson for the Department for Education (DfE) told The Guardian: "We know the system we inherited is broken and unfair, and some graduates feel the weight of this more strongly.
“We want to make sure the student loans system works better for everyone and are considering our response to the Treasury Committee’s inquiry.”
Meanwhile, Education Secretary Lucy Powell has noted that examining student loan repayments was 'very much at the top of my in-tray'.
"I want to make sure we look at this so it's fair for students," she told the BBC. "I can't make any promises, but it needs looking at."
Brenna Cooper