The Lead Untangles: Student loan debt – will graduates ever pay them off?

Graduates are struggling with spiralling repayments. Plus: Zack Polanski talks exclusively to The Calderdale Lead.

One woman’s debt has increased from £43,000 when she graduated to £57,000. Pic: Christian Lendl/Unsplash

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At a glance facts

When a record number of students enrolled for university in 2013, many were lulled into a false sense of security regarding student loans, told that they “wouldn’t even notice the repayments”. Now, some graduates who were in higher education between 2012 and 2023 have been saddled with an unpayable debt.

Figures from the Student Loans Company [SLC] show graduates in England who began repaying their loans in the financial year 2024-25 owed an average of £53,000, and that’s before sky-high interest rates have been added on.

Graduates are now accumulating more debt than they’re paying off.

What is a Plan 2 loan and why is it controversial?

In 2012, the coalition government introduced Plan 2 student loans. Tuition fees were tripled, from £3,000 to £9,000 (and later, £9,250), while university teaching budgets were cut.

Interest rates were linked to Retail Price Index [RPI] inflation plus 3 per cent depending on income, with those earning more paying a higher interest rate. While studying, Plan 2 loans accrue interest at RPI + 3 per cent. After graduation, the rate depends on income, rising to RPI + 3 per cent for higher earners.

Not only is RPI a poor measure of general inflation, compared with the more accurate CPI, it has reached double-digits in recent years, meaning the theoretical maximum on Plan 2 could have reached 16.5 per cent without caps – though governments have capped rates closer to 8 per cent recently.

Graduates make repayments of 9 per cent on earnings over the current threshold (which will be frozen at £29,385 in 2026, until at least 2029/30), with payments stopping if earnings drop below this.

Unlike commercial loans, graduates repay only when earning above a set threshold, repayments are linked to income and any remaining debt is written off after 30 years. The assumption was that graduate wages would rise steadily over time, allowing repayments to outpace interest.

The context

However, in 2024-25, the total interest added to England’s student loans was £15bn, compared to just £5bn in repayments. Following the pandemic and the invasion of Ukraine, RPI soared to a 42-year high of 11 per cent. Meanwhile, real wages have stagnated, leaving graduates struggling to reduce their debt.

Even after the Conservative government introduced caps, the interest rate on Plan 2 loans peaked at 8 per cent. The rate is currently around 6.2 per cent, and graduates are seeing an increase in their outstanding balance despite consistent repayments.

One woman, who graduated university in 2020, told Sky News that she paid more than £4,000 in student loan repayments last year. Despite that, her debt has increased from £43,000 when she graduated to £57,000. Plus, Rachel Reeves’ decision to freeze the repayment threshold means that, by 2030, graduates will be paying their loan back much sooner, making it more difficult for graduates to find their feet.

This could have a negative effect on aspiration, with graduates disincentivised from taking on higher paying jobs or working overtime due to the increase in payments. One resident doctor told the Telegraph that he wants to prevent his wage from climbing over £100,000.

Meanwhile, fears are mounting that lower-income students are being deterred from applying for higher education altogether. Official figures show the share of 18 to 20-year-olds from “higher” working-class backgrounds enrolling in higher education fell for the first time in 2022-24, dropping from 34 per cent to 32 per cent.

Independent analysts estimate that most Plan 2 borrowers will not fully repay their loans before they are written off. The Government expects student loan write-offs to increase rapidly to nearly £30bn per year, and while this is already accounted for in public finances, the costs are still big.

While debt for individual students is racking up, universities all across the country are facing financial crises. In the decade to 2025-26, real-terms funding per student has dropped by 35 per cent, according to Universities UK [UUK]. Last year, four in 10 universities were in financial deficit.

What are people saying?

Oliver Gardner from the campaign group Rethink Repayment said: “High interest rates on student loan balances mean that many graduates feel they will never realistically pay them off. They will be burdened with much higher marginal tax rates for most of their working lives, even after they have paid back the principal of the loan.”

Labour MP Luke Charters said: “The nature of the interest rates and the opaqueness of it in the round means it’s quite difficult for young graduates to be able to plan their financial lives. There’s this squeezed middle in which medium earners will just about pay the loan off within the 30-year term, and they’re the ones paying the most ostensibly in things like interest.”

What’s next?

Student unions and campaign groups such as Rethink Repayment have called on the government to ease the burden on graduates, urging higher repayment thresholds, lower repayment rates and cutting interest. So far, the government has frozen repayment thresholds rather than increasing them and introduced broader student finance reforms such as the Lifelong Learning Entitlement to support retraining.

With public debate intensifying and pressure from unions and opposition parties – Reform, for example, has promised to scrap interest on student loans, while the Greens say they’ll scrap tuition fees altogether – further changes in future budgets or legislation could be possible.■

About the author: Ella Glover is the audience engagement editor at The Lead. She is also a freelance journalist specialising in workers’ rights, housing, health, harm reduction and lifestyle. You can find her work in Prospect Magazine, Dazed, Observer Magazine and Women’s Health.

About The Lead Untangles: In an era where misinformation is actively and deliberately used by elected politicians and where advocates and opposers of beliefs state their point of view as fact, sometimes the most useful tool reporters have is to help readers make sense of the world. If there is something you’d like us to untangle, email ella@thelead.uk.

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Zack Polanski speaks exclusively to The Calderdale Lead

“I don't think anyone should trust a political party unconditionally, including the Green Party. Political parties aren't like football teams where you pick your team and just have to stick with them through the good and the bad. It’s a transactional relationship where you should always make sure they’re being held accountable and that they’re transparent.” – Find out what else the Green Party leader had to say to our Calderdale editor Andrew Greaves:

No fear, no loathing but plenty of hope on the Greens campaign trail in Calderdale

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