I'm about to peel back the layers of a shocking truth about the state of higher education in England, and it's not pretty. Get ready for a journey through the complex world of student loans, where the numbers don't add up, and graduates are paying a heavy price.
The Great Student Loan Scam
According to a recent report by the IFS, the Institute for Fiscal Studies, the cost of issuing loans to the 2022-2023 cohort of students is estimated to be negative, meaning graduates will repay more than they borrowed, even after adjusting for inflation. This is a complete turnaround from the government's initial promise to subsidize undergraduate loans.
In simpler terms, the headline tuition fee, which was supposed to be a shared cost between graduates and the state, has stealthily shifted to a system where graduates bear the brunt of the financial burden. The numbers speak for themselves: a £4,950 fee has become a £9,606 burden for graduates, while the state's contribution has dropped to a mere £356.
The IFS puts it bluntly: "Tuition fees almost doubled in a decade on average." This is a reality that universities seem reluctant to acknowledge.
The Onion of Tears
Think of the English student loan system as an onion, with each layer bringing tears to the eyes of students and graduates. On the surface, there's the headline fee, which may not be the actual amount paid. Below that, there's the "debt" figure, impacted by interest, which many students won't fully repay due to loan write-offs after a certain period.
But what truly matters, buried deep within this onion, are the repayment terms. And the 2022 cohort has been hit hard twice over.
In 2022, the then-Universities Minister, Michelle Donelan, announced a response to the Augar review, promising to reduce interest rates on student loans to inflation-only levels. However, to fund this reduction, the government introduced "Plan 5," which extended the write-off period to 40 years and set the repayment threshold at £25,000, rising with inflation from April 2027 onwards.
For students on the old "Plan 2," with interest rates at RPI-X plus 3%, Donelan also announced that the repayment threshold would be fixed at £27,295 until April 2025. This move would pull more borrowers into repayment and increase their annual repayments, resulting in a loss for nearly all borrowers, especially those with middling earnings.
The Reverse Robin Hood Effect
Bridget Phillipson, the Shadow Secretary of Education in 2022, described the Tory government's changes as "another stealth tax for new graduates," hitting those on low incomes the hardest. In her 2023 speech to Universities UK, she expressed concern about the unfairness of these changes, which would disproportionately affect women and low earners throughout their working lives.
Phillipson promised that a future Labour government would swiftly address these issues, but the current government has continued down the path of stealth and regressive changes.
A Budgetary Blink and You Missed It Moment
Buried within the Budget in November, Chancellor Rachel Reeves announced a freeze in the Plan 2 repayment threshold, which will remain at its April 2026 level (£29,385) for three years. This move, along with the freezing of interest-rate thresholds for Plan 2 graduates, will result in many borrowers making repayments for longer and accruing more interest.
The IFS estimates that the impact of this interest accrual will be nearly as significant as the repayment threshold freeze, affecting a different set of borrowers. This stealthy move was not mentioned in the Budget document or speech but appeared deep within the OBR costings, later confirmed by the IFS.
The Interest Rate Conundrum
The political challenge of increasing interest rates is significant, as the system is still labeled and sold as a loan, leading people to assume they'll repay it. For the Plan 2 cohort, a substantial increase in interest rates would mean all graduates paying the "graduate tax" for 30 years, with only the most successful paying more.
However, tilting the system towards being more like a loan makes it inherently regressive.
A Fairer System?
In a debate on student loans, Treasury Minister Torsten Bell argued for a "lower net contribution to universities from the taxpayer" as part of a fairer system of university funding. But with 34% of loan debt for full-time Plan 2 graduates forecast not to be repaid, and the state's contribution for the 2022 cohort being a negative 4%, it raises questions about the fairness of expecting students to fund public "goods" from their private debt.
The Decline of Student Support
The IFS report also highlights the decline in maintenance loan entitlements per year by household income. By 2029-2030, some students with household incomes between £23,400 and £61,400 may be able to borrow less in real terms than they can this academic year, with the largest falls for those with household incomes around £53,000.
This refusal to uprate the household income threshold since its announcement in 2007 will result in fewer students receiving the maximum loan as time goes on.
A Look Back at Better Times
In 2004, the Secretary of State for Education and Skills, Charles Clarke, announced a new package of student finance to ensure "disadvantaged students will get financial support to study what they want, where they want." This included raising maintenance loans to the median level of students' basic living costs and providing repayment holidays for graduates.
However, over time, the household income threshold for grants has remained stagnant at £25,000, and grants have become derisory. Bursaries are no longer guaranteed, and most universities are reducing their spend on them.
The Impact of Falling Support
The decline in student financial support has led to two-thirds of students working, attendance becoming harder to secure, and mental health problems skyrocketing. More students are choosing to live at home, limiting their subject and institution choices, and youth despair is at record levels.
Levelling Down, Not Up
The reason for all these changes lies in the borrowing situation. In 2021, the government could borrow cheaply due to low interest rates and expected higher inflation. However, with Germany back in the borrowing game, the situation has reversed, and borrowing now costs the government money in real terms.
The IFS report's education spending squid graph shows that while investing in early years and NEETs is a priority, there has been no proper debate about the share of higher education costs that should be paid by the state versus graduates.
As a result, England now has the most expensive state higher education system in Europe from a student/graduate perspective, with recipients paying more, getting less, and having less time and money to participate fully. This has led to worse educational outcomes and mental health issues.
A System Stacked Against Social Mobility
The regressive nature of the loans changes, coupled with the decline in student support, means that those least likely to benefit from the upcoming boomer wealth transfer are also the ones losing out the most. The role of higher education in social mobility is dying, and the future looks bleak.
