When I was seventeen, I signed up for a student loan to cover the cost of going to university. Teachers, parents and the university system were in unanimous agreement that the loan was a good deal, enabling me to study and then pay back what I owed once I started earning a good salary. I was not told that going to university would mean allowing the state to seize arbitrary amounts of my income to plug gaps in its budget for most of the rest of my working life. But that is what is happening, as is quite transparently admitted by the current government.
Those on a Plan 2 loan, like me, have nine per cent of all income over a threshold – currently £28,470 – taken in repayments from their payslip each month. Although this repayment threshold was meant to rise with inflation, it has been frozen since 2021. In the last Budget, Rachel Reeves announced that though it will be raised this April, it will then be frozen for another four years, until April 2030. This is expected to raise an additional £400 million per year for the Treasury from young graduates, compared with if inflationary rises were to continue as originally promised.
I was not told that going to university would mean allowing the state to seize arbitrary amounts of my income to plug gaps in its budget
The significantly above-inflation interest rates on these loans, in combination with very low wage growth and a nose-diving graduate wage premium, mean that most loan holders will never clear the debt. Roughly speaking, if you took out a loan for a three-year degree, you would need to earn around £70,000 – putting you almost among the highest ten per cent of earners in the country – before your balance even starts to go down. Otherwise, though hundreds of pounds come out of your pay cheque every month, you will owe more with every passing year as interest mounts faster than your repayments can make a dent in it.
Rather than seeing this as a loan they will eventually pay off, most young graduates have just adapted to the idea that they will effectively be subject to an additional nine per cent tax into middle age. Notably, this means they may end up paying significantly more in total for the same degree than peers whose parents were able to pay tuition fees up front. For most, then, the freezing – in real terms, lowering – of repayment thresholds does not mean clearing the debt faster; it just means that more of your income is subject to this nine per cent ‘tax’.
The Labour government has been explicit that the threshold fiddling has nothing to do with designing a fair way to pay back what is owed, but rather is a way of using the salaries of young graduates as a source of revenue to top up spending in other areas. Rachel Reeves has defended the decision by saying that ‘to be able to bring down NHS waiting lists does require putting money in’; schools minister Georgia Gould has argued that it is necessary in order to fix ‘problems in our public services’.
Other aspects of the system also seem designed to extract the maximum possible value from those trapped inside it. Plan 2 student loans are subject to interest at a rate based on the Retail Prices Index (RPI), which the government’s own sources have said is an overestimate of inflation rates; the more conservative Consumer Prices Index (CPI) is used to guide the government’s monetary policy elsewhere. So one rule for us, and another for you. And then there is the shocking fact that an even higher interest rate is added for those on higher salaries, like a treadmill that speeds up as you run faster, ensuring it is as hard as possible to clear the debt and stop paying.
It is not unreasonable for the government to tell young people that, as part of a general programme of belt-tightening, they must cover the cost of their own degrees. Nor is it unreasonable that interest is charged on loans: borrowing money costs money. The fact that the majority will spend decades paying off interest without ever touching the capital is the mathematical result of the loan’s terms and is not, many would argue, fundamentally unfair. Most young graduates accept the principle of having to repay the cost of studying, though they may feel a touch of understandable resentment that previous generations enjoyed the same education for free.
Rather, the recent upswelling of anger comes from the perception that loan holders are being treated in bad faith and used as a piggy bank to sustain the government’s irresponsible spending. The bill for working-age benefits alone is set to reach an astonishing five per cent of GDP by 2030 – almost twice what it was in 2020. Britain cannot afford this. But that is hardly the particular responsibility of a small cohort of the population who happened to start university after 2012. The British state’s addiction to spending money it does not have is simply not our problem – or at least, it should not be.
Student loan holders are, by and large, conscientious and hard-working young people who as teenagers followed the advice of trusted adults on how to get ahead in life. Many of them are teachers, doctors, nurses; they are contributing to society and creating value for others. And yet the government is acting like a loan shark and punishing them for trying to do the right thing, confiscating the money they could otherwise use to get on the housing ladder, have children or start saving for their pensions. They are angry, and they are right to be so.
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