Graduates trapped by soaring student loan debts
Lucy Newton, a 26-year-old solicitor, signed up for student finance at 18 believing it was an investment in her future. Instead, she says she is trapped by a debt that keeps growing despite paying hundreds of pounds every month. After 18 months of repayments of around £300 per month, her balance has ballooned from £65,667 to over £84,337.61 due to thousands of pounds in interest added during and after her studies.
Lucy, who works in child protection for social services, came from a low-income background and relied on the maximum maintenance loan to attend the University of Liverpool, then took out another loan for her Legal Practice Course. She still lives with her boyfriend's parents in Hertfordshire because saving for a house deposit has become so difficult. Every pay rise feels like a punishment rather than a reward, she says: 'I'm getting a pay rise this month, but I don't think I'll be much better off once tax, National Insurance, my pension and student loans come off. What is the incentive?'
MPs find 'moral obligation' to reverse threshold freeze
The Treasury Committee recently concluded that the Government has a 'moral obligation' to reverse a controversial freeze on student loan repayment thresholds and said parts of the system amounted to 'mis-selling'. The committee criticised Department for Education promotional material comparing student loan repayments to the cost of a mobile phone contract or cinema tickets, arguing the comparison was misleading for higher earners, particularly those with 'Plan 2' loans issued in England between September 2012 and July 2023.
The committee also found that YouTube videos and slides used to 'educate' students did not disclose that the government could change the terms and conditions of loans. The Student Loan Company has not made it clear enough during the loan application process that the government could retrospectively change the terms.
Phone bill promises ring hollow
Joe Hazell, 31, an NHS commissioner from West Yorkshire, says careers advisers repeatedly told students not to worry because repayments would be like paying for a phone bill. 'We were told to think about it as a phone contract,' he said. 'But I'm paying hundreds of pounds back every month. They told us the thresholds would increase with average earnings. The interest rate wasn't explained properly at all.'
Joe, who studied History and Politics before completing a master's degree, pays around £400 every month across his undergraduate and postgraduate loans. Although he has repaid around £10,000 of his undergraduate borrowing, almost £25,000 in interest has been added, leaving him owing significantly more than expected. The repayments affected what he and his wife could afford when buying their first home because mortgage lenders took the deductions into account when assessing affordability. 'It delayed us buying the house we wanted and delayed starting our family,' he said.
Higher earners also feel the squeeze
Imy, a product manager from Oxfordshire, left university with around £55,000 of debt after completing undergraduate and postgraduate degrees. He now sees around £829 deducted from his salary every month for student loan repayments. As a teenager, he remembers being told student finance was 'the best loan you'll ever get' and likened to paying a phone bill. 'I didn't know what interest rates were,' he said. 'I didn't understand what repayments would actually look like if you were earning a higher salary.'
Despite owning a home after years of living with his parents to save a deposit, he says student loan deductions continue to delay other milestones. 'I couldn't afford to have a child right now. Whatever milestone you want - a wedding, children, a house - it's another five years down the line.' He believes freezing repayment thresholds sends the wrong message to ambitious young professionals. 'It takes the incentive out of progressing. You work harder, earn more, then more is taken away.'
Freeze to take effect from 2027
During the October budget, Chancellor Rachel Reeves froze the salary threshold for loan repayments for three years, commencing in 2027. From next year until 2030, graduates will be required to pay back nine percent of everything earned above £29,385. Graduates will likely be left worse off as a result, as the threshold would have otherwise risen with inflation.
Oliver Gardner, founder of campaign group Rethink Repayment, said repeated freezes had 'completely undermined graduates' trust in the system' and accused successive governments of treating young graduates as 'cash cows'. 'We have heard from thousands of people who have not been able to buy homes or start families due to the financial pressures caused by their student loan repayments,' he said. The Treasury Committee received more than 52,000 responses during its inquiry - one of the largest ever submitted to a select committee.
Committee recommends changes
The committee's report concludes that the Government should reverse the latest threshold freeze, move towards sharing university funding equally between graduates and taxpayers, and stop linking student loan interest to the higher Retail Prices Index. For graduates like Lucy, however, the damage has already been done. 'It wasn't the loan we signed up to,' she said. 'We've been mis-sold. A private bank wouldn't be allowed to change the terms like this. Why should the Government?'
An SLC spokesperson said: 'The Treasury Committee's inquiry makes an important contribution to the debate on student finance. The Student Loans Company administers student finance on behalf of the UK Government and the devolved administrations of Wales, Scotland and Northern Ireland, supporting students and borrowers throughout their student finance journey, in accordance with government policy. We recognise the importance of ensuring that students and borrowers across all repayment plans have access to clear, accurate and timely information about student finance. We take this responsibility seriously and we will continue to work closely with the Department for Education, including on any wider actions arising from the report.'
