Student Loans Labelled as 'Disguised Taxation' in Scathing Critique
The controversial student loan system in the United Kingdom is facing renewed and intense scrutiny, with critics describing it as a fundamentally unfair mechanism that places disproportionate burdens on younger generations while older citizens benefit from more favourable arrangements.
A System Transformed into 'Cruel, Grotesque Nonsense'
Originally introduced by the Blair administration as a method to finance expanding university provision without raising income tax, what began as student "loans" has evolved into what many now characterise as a graduate surcharge. The system was predicated on the notion that those who benefited from higher education should contribute more, but decades of steep tuition fee increases and rising interest rates have transformed it into what critics call an illogical and increasingly onerous burden.
Financial expert Martin Lewis has publicly challenged the Chancellor over recent changes, stating plainly that the current approach is "not a moral thing to do." His intervention highlights growing concerns about a system that affects approximately 5.8 million people who took out Plan 2 student loans between 2012 and July 2023.
The Mechanics of a 'Perpetual' Debt
Under the current Plan 2 repayment scheme, interest is set at the Retail Price Index (RPI) level of inflation plus up to three percentage points, depending on earnings. With RPI typically higher than the Consumer Price Index due to its inclusion of housing costs, graduates currently face interest rates around 7.2 percent. Critics argue this creates what amounts to a perpetual debt—similar to historical "perpetuals" in bond markets—that can never be fully repaid and extracts what some describe as usurious payments throughout a graduate's working life.
"It is in no way a repayment on any kind of 'loan' as the term is commonly understood," notes one commentator. "That, my friends, is a harshly-designed surtax, but one that only happens to be levied on people with a degree, and not necessarily on mega-earnings."
Stark Contrast with Pension Protections
The student loan system stands in particularly sharp relief when compared with protections afforded to pensioners through the "triple lock" mechanism for state pensions. While graduates face interest rates tied to inflation with additional percentage points, the state pension is protected by a link to earnings, inflation, or a 2.5 percent rise—whichever is greater.
This disparity has fuelled debates about intergenerational fairness, with critics noting that many of those who designed and maintain the current student loan system received their own higher education either free or funded through general taxation. "I have to admit, imposed on a generation of younger people by their elders, like me, who of course got their higher education for free," acknowledges one commentator.
Questioning the Fundamental Premise
Chancellor Rachel Reeves recently defended the system on LBC, arguing: "Around half of people go to university today, but half don't. And it is not right that people who don't go to university are having to bear all the cost for others to do so." She also noted that loans are eventually "written off" for those who don't earn enough, though critics counter that this only occurs because "even HMRC can't pursue you beyond the grave."
Opponents of this reasoning offer a reductio ad absurdum: if everyone attended university, everyone would pay the extra tax, resulting simply in a country with higher overall income tax rates. This perspective suggests that higher education, like school-age education, strengthens the nation's human capital and should be viewed as a collective investment rather than an individual burden.
Calls for Systemic Reform Grow Louder
Critics point out that society doesn't charge interest on NHS usage for those who are ill, nor does it impose extra charges on parents with multiple children in school or those requiring special educational needs support. Universities, they argue, represent significant economic assets—as export earners, investments in young people, and engines for prosperity in struggling towns.
While debates continue about course quality, institutional efficiency, and international student numbers, a growing consensus suggests that those who graduate and earn more will naturally pay more tax through a properly designed progressive income tax system. The additional burden of student loan repayments, critics argue, represents an unnecessary penalty that fails to recognise graduates' broader contributions to society—contributions they made long before the current student loan system existed.
As Martin Lewis's intervention demonstrates, pressure is mounting for fundamental reconsideration of a system many believe was "a mistake in the first place" and should be scrapped entirely. The debate continues to highlight tensions between different generations and economic groups, with no easy resolution in sight for what has become one of the most contentious issues in British education and public finance.
