Student Loan Regrets: 52% of UK Graduates Will Reject Loans, Treasury Inquiry Finds
More than half of Britain’s graduate students would leave their student loans if they had the chance and, according to one of the biggest ever public responses to a parliamentary inquiry, the findings should rattle ministers, universities and employers alike.
The Treasury select committee, which scrutinizes financial policy, launched its inquiry into student loans earlier this year amid mounting evidence that high interest rates and ballooning balances are weighing heavily on the working generation. Its request for evidence drew more than 52,000 responses within a month, among the largest the committee has ever taken on, and the verdict from the field is a difficult read.
Of the 49,000-plus borrowers who responded, 57 percent said they did not understand the terms and conditions of their payment when they signed up, and 51 percent said they would never take one out again. Yet 91 per cent agreed, with equal sincerity, that they would not go to university without one, a tension which is at the heart of the policy headache now facing the Treasury.
Important steps are being taken
In a magazine that talks to small business owners every day, the most remarkable discovery is not the headline figure but the morale breakdown. Defendant after defendant told the committee that monthly deductions force them to postpone life decisions that drive consumer demand and business risk-taking: buying a first home, starting a family, and accepting a promotion that puts them in a higher return band.
That is in line with a separate review by Sir Alan Milburn, the public works tsar, which found that one in ten so-called NEETs, young people not in education, employment or training, now have a degree. Sir Alan told the Financial Times that “employers want skilled workers, but the education system isn’t providing them,” a complaint that will resonate with SME owners who have watched the NEET total reach one million while skilled job vacancies are being forced to fill.
£53,000 in debt and a stinging interest rate
The numbers are solid. The average graduate now leaves university with debts of around £53,000. From April after graduation, they offer 9 percent of all earnings above the threshold from £25,000 to £33,795, depending on which loan scheme and which UK nation it is working for. Add a postgraduate loan to the mix and another 6 per cent is deducted on income over £21,000.
Stronger criticism is reserved for Program 2 loans, taken by those who studied between 2012 and 2023. Interest is indexed to the Sales Price Index and up to three percentage points, depending on profit – a formula, as the Institute for Fiscal Studies has repeatedly argued, means that most Plan 2 graduates watch their monthly balances grow. Respondents to the committee described the regime as “excessive, outdated and inconsistent”, with 93 percent saying the interest rate and repayment terms were unreasonable.
A low tax rate that drives talent abroad
For high earners, the arithmetic looks even more brutal. A UK worker holding both an undergraduate and a master’s loan, earning more than £50,270, faces a marginal tax rate of 57 per cent, income tax of 40 per cent, national insurance of 2 per cent, 9 per cent on undergraduate fees and 6 per cent on the graduate piece.
It’s no surprise then that the survey found a steady stream of graduates planning, or actively considering, moving overseas. Loan repayments follow them across borders, but the lure of lenient tax laws is doing its silent work, risking brain drain that employers, especially in technology, finance and life sciences, can’t afford.
Class inequality, social mobility and SME workers
The committee did not applaud the wider impact on society. It concluded that student loans “reinforce class inequality and undermine social mobility”, because wealthier families can simply prepay tuition and avoid interest-bearing debt altogether. The payment burden, he added, was making it difficult for graduates to build up emergency savings, contribute to a pension or open an ISA – exactly the kind of long-term savings older people need.
Dame Meg Hillier, chair of the committee, was blunt: “It is vital to our country’s prosperity that people in their twenties feel motivated to work hard and build successful careers.” Unfortunately, these findings tell us that far too many young people feel burdened and depressed by their student loans.”
That concept will fully reach SME employers, who have long argued, as Business Matters put it in its analysis, carried out by Trends Research, on why universities should be forced to tell the truth about graduate jobs and credits, that the UK degree value proposition has come out badly in dealing with the realities of the modern job market.
What should ministers do next?
The inquiry, which was launched in part by the Sunday Times’ End the Graduate Rip-Off campaign, will report later this year. Three changes are likely to dominate the debate: a sensible cut to the RPI-plus interest rate; the recalibration of payment limits to reflect post-pandemic wage payments; and clearer disclosure at registration, so 18-year-olds know what they’re committing to before the ink is dry.
For business owners, political considerations are less important than practical ones. Workers reluctant to relocate, put off home ownership, delays in family formation and the eyes of the Heathrow travel board are not the workers the UK needs to power growth in the second half of the decade. The Treasury Committee has given Westminster a 52,000-strong reminder that student finance is no longer an institutional issue, a business problem.
