It seemed like a good idea at the time, but my decision to do the ‘right’ thing and go to university has left me deeper in debt than I could ever have imagined.
I’m fortunate to have a full-time job. I’m only 24 with decades of work ahead of me. I’m doing my best to pay off my student loans month by month.
Yet, the truth is I face a working lifetime of debt and will never, in all likelihood, pay back what I owe – the almost unthinkable sum of £75,600.
Every month, the Government’s Student Loans Company removes 9 per cent of my pay before I even see it. Yet, because my debt is growing by 13 per cent a year – far more than the 3.75 per cent Bank of England base rate – the total never comes down.
On the contrary, my debt grows larger by the week, inhibiting day-to-day spending and casting a permanent shadow over any future plans.
I’m not alone, of course. Most of my friends are in the same boat, even if my debts are unusually severe. It is estimated that, today, the average undergraduate borrows £44,690 for a three-year course, a total that, like mine, will continue rising as interest charges added outstrip our ability to pay.
So steep are the charges, the respected Institute for Fiscal Studies (IFS) has found that today’s graduates need to earn at least £66,000 before they can expect to see their debt starting to reduce. That’s when their monthly repayments outweigh the monthly interest.
Moreover, it’s increasingly clear that Britain’s out-of-control student loan system is a problem for the economy as a whole.
Extortionate yet completely unworkable, the system is burdening the Treasury with vast and largely unacknowledged costs now running into the billions.
I’m only 24 with decades of work ahead of me, writes Charlotte Ambrose, yet the truth is I face a working lifetime of debt and will never, in all likelihood, pay back what I owe
The Institute for Fiscal Studies has found that today’s graduates need to earn at least £66,000 before they can expect to see their debt starting to reduce
Last year, for example, the Government shelled out £15billion to finance student loans, yet received only £5billion in repayments.
In 2012, outstanding student loan debts stood at £40billion – today that figure has increased almost seven-fold to an extraordinary £267billion.
Little more than half of today’s graduates, 56 per cent, are expected to pay back what they owe in full. Yet, undeterred, the Government plans to continue lending around £21billion a year to 1.5million students. Even those loans which are repaid in full appear to make a loss for the Exchequer – at least for now. The IFS has found that current government borrowing costs are so steep, that the expense of handing out the loans is not covered by the interest payments made by graduates.
According to the IFS, this particular financial hole could eventually reach £10billion, a cost that makes no appearance in the Treasury’s official calculations.
There are concerns about the effect of student loans on the employment market, too. As repayments are only due when a graduate starts earning beyond a series of thresholds – in my case it was a little over £28,000 a year – there’s a clear incentive for graduates to earn less, turn down pay rises or not work altogether.
And that incentive has just become a little stronger – new rules mean students who enrolled in higher education after 2024 must start repayments when they earn just £25,000 a year, a figure below the annual minimum wage.
With individual debts written off after 30 years, meanwhile, it’s left to the hard-pressed taxpayer to take care of the outstanding balances. It is only now that the true gravity of the situation is becoming understood.
As a recent report from the World Economic Forum think-tank puts it, students are becoming ‘a financial burden with consequences not only for individual borrowers but also for entire economies’.
John O’Connell, chief executive of the TaxPayers’ Alliance, is blunt: ‘The soaring student loan book is a ticking timebomb for the public finances, with billions set to be written off.’
Not that any of this should come as a surprise. This slow-moving disaster has been developing, in plain sight, for more than 30 years.
It began in 1992 when, with John Major as prime minister, education secretary (later Chancellor) Kenneth Clarke encouraged Britain’s polytechnics – which had specialised in vocational and industrial courses – to call themselves ‘universities’.
John O’Connell, chief executive of the TaxPayers’ Alliance, described the problem as a ‘ticking timebomb for the public finances’
New rules mean students who enrolled in higher education after 2024 must start repayments when they earn just £25,000 a year, a figure below the annual minimum wage
At the same time, Major’s government announced a significant expansion of student numbers and declared that the proportion of school leavers going on to higher education would increase from one in five to onein three. With the election of Tony Blair in 1997, came a more ambitious target.
Blair promised that 50 per cent of all school leavers would go to university, but decreed that students would pay tuition fees to meet the cost. Low-cost student loans were provided to help them with the fees. What had been free suddenly came at a price.
The next blow landed in 2012, when David Cameron’s government tripled tuition fees to £9,000 a year, a radical change in affordability.
It’s left graduates like me facing a double whammy. First comes the monthly repayment charge of 9 per cent of my salary.
Then comes the interest on my total debt which goes up by 3 per cent on top of the current rate of inflation calculated according to the Retail Prices Index (RPI).
The RPI is consistently higher than the alternative Consumer Prices Index (CPI), which is used for most official calculations.
Should my salary reach £51,000, the interest charged would jump to 6 per cent plus RPI.
Today, then, despite a comparatively modest salary, my student loan repayments mean I’m taxed at 29 per cent – at a time I should be investing for the future. To me, at least, this is the economics of the mad house. How does anyone gain from it?
As Andy Westwood, Professor of Public Policy at the University of Manchester, explains – the current loans system was devised at a time when the prospects for individual incomes and economic growth were comparatively rosy. ‘Looking back, we know it has been a terrible period for growth and incomes,’ he says.
‘Meanwhile, inflation and the cost of living have soared. The economic backdrop really hampers the way the system was supposed to operate.’ It also ‘hampers’ those of us, like me, who are really struggling with debt.
Libby Morell, an accountant from London, tells me that she contributes £222 towards her loan each month, yet the total she owes has increased by £12,000 in the five years since she left university.
Accident and Emergency nurse Elena Turpin, 24, has a student loan with a balance of over £70,000. ‘I don’t think I’ll ever pay my loan back,’ she says.
‘I feel a bit robbed, paying huge debts when I’m doing a service like being a nurse. It used to be free to study nursing.’
She told me she had no choice but to take out a loan, even though she lived at home while studying. Completing 2,000 hours of unpaid work to qualify as a nurse left Elena badly short of money. Today, she pays around £60 a month to pay off a debt that keeps increasing month by month.
I enjoyed studying for my degrees in English Literature, yet I, too, feel conned.
I started at Durham University in 2019, shortly before Covid struck. My time there was disrupted both by lockdowns and months of pay strikes by lecturers. I missed out on a considerable amount of face-to-face learning, yet still had to pay my tuition fees in full – and am still doing so.
Accident and Emergency nurse Elena Turpin has a student loan with a balance of over £70,000, which she doesn’t believe she’ll ever be able to pay back
‘I feel a bit robbed, paying huge debts when I’m doing a service like being a nurse,’ says Elena. ‘It used to be free to study nursing.’
With so much of my undergraduate degree disrupted, I decided to study for a one-year Masters in English Literature at the University of Bristol. I’m glad I did, aside from the harsh reality of a £12,000 loan with an interest rate even higher than the one charged to my undergraduate degree – RPI plus 6.2 per cent. Over a 30-year period of repayment, I could easily end up paying more than double the sum I originally borrowed.
It’s likely my time at university has helped me get a job in journalism, but this is by no means the case for others.
New figures released this week revealed that 700,000 graduates are out of work and claiming sickness benefits. Overall unemployment is close to a five-year high of 5.1 per cent.
Desperate to pull in students, meanwhile, more and more universities have taken to offering so-called Mickey Mouse degrees, with weak job prospects.
Are three years studying the semiotics of yoga really worth the pain of a £50,000 debt?
It’s hard not to feel this a matter of generational unfairness. Why should people in their twenties and thirties shoulder a burden devised by older politicians who went to university for free?
And why, when so many young people are economically inactive, does the Government continue to punish strivers with these unaffordable debt repayments?
I feel my financial future has been sabotaged.
The idea of saving to get on to the property ladder, for example, is pretty much a fantasy when so much of what I earn disappears on repayments and merely getting by in an increasingly expensive world.
It’s exasperating when I compare my situation to that of friends who went straight into the workforce and are now prospering.
We earn similar money but, unburdened with debt, their take home pay is significantly higher.
No wonder so many young earners – who should be the taxpayers of tomorrow – are fleeing the country. From June 2024-25, 195,000 young people under the age of 25 moved abroad according to the Office for National Statics. Although moving abroad, of course, doesn’t absolve you of making monthly student debt repayments.
Not that I can see an immediate way out of the predicament.
As attractive as the Green Party’s calls for debt forgiveness might seem, writing off £267billion at a time of economic strain is pie in the sky. Such a move would cripple the economy further.
Yet without radical reform, the student loan system is threatening to tear a gaping hole in the public purse.
A grassroots campaign, Rethink Repayment, is calling for monthly loan repayments to be capped at 5 per cent of a graduate’s salary; for annual interest charges to be pegged to the lower CPI; and to extend the threshold at which payments start beyond £25,000.
Earlier this month, Labour MP Luke Charters called student loans ‘a misselling scandal waiting to unfold,’ as he proposed a new Bill in parliament to reform the system.
‘Repayment is needlessly complex and riddled with ludicrous features, such as charging higher interest rates to those who go on to earn more,’ he said.
‘The result is a system that adds stress during study, confusion after graduation and long-term financial insecurity for an entire generation.’
Certainly, it’s time for the Government to start listening to the hundreds of thousands of graduates who are struggling with student debt and unable to play their full part in the economy.
It’s not just the young who are suffering, by the way, but an ever-growing proportion of the British workforce struggling with the burden of these loans. And their pain is threatening to bring down the economy itself.
Everyone in this rotten racket is a loser.