The truth about student debt

Author: Brian Weaver

Student loans are, for the majority of students, an unavoidable part of obtaining higher education. The steep rise in tuition fees sees students taking out loans of over £15,000/ year and for many this sudden, large debt is worrying. The regulations around repaying such debt are ever changing and complex, so we have put together this simple guide to help you navigate your way around student debt.

A rise in tuition fees

Gains for the taxpayer have been at the cost of students from the poorest homes, whom the government promised to protect when tuition fees rose from £3,000 to £9,000. They graduate with the highest debt, the report said.

Concern is also mounting over interest rates, which add an average of nearly £6,000 by the day a student graduates and have been described as “usurious”. The Russell Group of leading universities said that ministers needed to address the issue. From September, students will pay interest of 6.1 per cent. Some well-off families are taking out low-interest commercial loans to pay off student debts faster.

Removal of maintenance grants

The scrapping of maintenance grants last year hurt the poorest and a freezing of the £21,000 salary threshold has most affected middle earners, the report suggested. This more than wiped out benefits from the tuition fee reforms of 2012, which initially made the poorest graduates £1,500 better off.

This week Downing Street ruled out changes to tuition fees after Damian Green, the first secretary of state, called for a “national debate” on the issue. Jeremy Corbyn won backing from young voters for his pledge to scrap fees, which were introduced by Labour in 1998.

Graduates from the poorest 40 per cent of families now have average debts of £57,000, compared with £43,000 for the richest 30 per cent, who are more likely to have their living costs subsidised by their parents. Average debt is double the amount students would have faced under the old system.

The interest rate on student loans

The interest rate on student loans is beginning to be called usurious.There was a risk of extra cost to the taxpayer because “if top earners can acquire credit with a lower interest rate, they may be incentivised to repay loans early, or not take out loans in the first place. This will increase the overall taxpayer cost of higher education provision in the long run.” The freezing of the salary threshold at £21,000 until 2021 — above which graduates repay 9 per cent of income — was likely to hurt low and middle earners, the report found.

Total student loan debt has risen to more than £100 billion. Mark Leach, editor of the Wonkhe think tank, said: “The interest rate on student loans is beginning to be called usurious.”

Jo Johnson, the universities minister, said: “The government consciously subsidises the studies of those who . . . may not repay their loans in full. This is a vital and deliberate investment in the skills base of this country, not a symptom of a broken student finance system.”

Asked this morning about whether the government would be willing to review the interest rates on student loans or the caps dictating when and how much students must pay back, he said the student finance system was due to be reviewed next in 2021, adding that the department always keeps the system “under review”.

He told the BBC Radio 4 Today programme: “It’s simply wrong to say this is a broken system.”

Since the regulations are ever changing when it comes to tuition fees and student debt, each graduate year is likely to be subject to a very different situation. You are able to clarify your own debt by contacting your loan provider directly and asking for a breakdown of your finances.