Here’s a shocking truth: today’s graduates are paying more for their education but receiving less in return. And this is the part most people miss: buried within the IFS Annual Report on education spending in England lies a jaw-dropping revelation. The long-term cost of issuing loans to the 2022–23 cohort is projected to be negative (–£0.8 billion), meaning graduates will repay more than they borrowed, even after adjusting for inflation. This marks a stark shift from the government’s earlier stance, which suggested subsidizing undergraduate loans by about 45p in the pound. Now, the state is profiting from these loans.
To put it simply, the cost-sharing arrangement has quietly transformed. What was once a £4,950 (graduates) and £4,050 (state) split in tuition fees has become a £9,606 (graduates) and –£356 (state) division for the 2022 cohort. But here’s where it gets controversial: while universities rarely highlight that tuition fees have nearly doubled in a decade, the IFS confirms this as reality.
The English student loan system is like an onion—layered and guaranteed to make you cry. On the surface, there’s the headline fee, which you might never fully pay. Beneath that lies the ‘debt’ figure on your loan statement, influenced by interest. But what truly matters, buried deep within, are the repayment terms. The 2022 cohort has been hit hard twice.
In 2022, then-universities minister Michelle Donelan announced a reduction in student loan interest rates to match inflation, but this came with a catch. The new ‘Plan 5’ extended the loan repayment period from 30 to 40 years and set a higher repayment threshold of £25,000, rising with inflation from April 2027. For those on the old Plan 2, the repayment threshold was frozen at £27,295 until April 2025. These changes, according to the IFS, disproportionately penalize graduates with middling earnings.
Boldly highlighting the controversy, Labour’s Shadow Secretary of Education, Bridget Phillipson, called these changes a ‘stealth tax’ that unfairly burdens low-income graduates. She vowed to address these issues, promising a more progressive system. Yet, the recent Budget revealed another stealthy move: a freeze in the Plan 2 repayment threshold at £29,385 for three years, alongside a freeze in interest-rate thresholds. These changes mean longer repayment periods and higher interest accruals for the 2022 cohort, further exacerbating their financial strain.
The IFS calculates that these adjustments will disproportionately affect lower-middle earners, making the system even more regressive. And this is the part most people miss: these changes were quietly tucked into the Budget, with minimal public scrutiny. Worse, they lack an equality impact assessment and proper consultation with Welsh ministers, despite requiring joint approval.
Here’s a thought-provoking question: Is the Treasury, desperate to balance its books, quietly raiding graduates’ budgets, hoping no one notices? The political challenge of increasing interest rates—which would make the system less regressive—is significant, as higher rates are universally unpopular. Yet, without such measures, the system remains unfairly tilted against those least able to afford it.
The decline in maintenance loan entitlements further compounds the issue. By 2029–30, some students from households with incomes between £23,400 and £61,400 may borrow less in real terms than they do now, with the largest drops exceeding £1,100. This is due to the government’s refusal to uprate the household income threshold since 2007, leaving fewer students eligible for maximum loans.
Boldly highlighting the controversy, the government’s definition of ‘disadvantaged backgrounds’ for the Turing scheme has shifted from £25,000 to £35,000 in annual household income, further marginalizing those in genuine need. Meanwhile, the abolition of protections for parental contributions when multiple children are in higher education, the inadequate support for postgraduate loans, and the neglect of student parents paint a grim picture.
Labour’s past promises of fairer student finance—such as higher grants, increased maintenance loans, and repayment holidays—now seem like distant memories. Today, students like ‘Student A,’ ‘Student B,’ and ‘Student C’ receive significantly less support than their counterparts in 2008, even when adjusted for inflation. This gap between state support and students’ actual needs explains why two-thirds of students work, why mental health issues are soaring, and why youth despair is at record levels.
The root of these issues lies in shifting borrowing costs. In 2021, the government could borrow cheaply due to low interest rates and high inflation expectations. Today, with higher interest rates and lower inflation, borrowing costs the government in real terms. This change, though opaque, has made student loans far more expensive for public finances.
Here’s a thought-provoking question: Why hasn’t there been a proper debate about the state’s role in funding higher education versus the burden placed on graduates? The UK now has the most expensive state higher education system in Europe from a student’s perspective, with graduates paying more, receiving less, and facing worse educational and mental health outcomes. This system disproportionately harms those least likely to benefit from the impending boomer wealth transfer, effectively killing higher education’s role in social mobility.
In conclusion, the current system is unsustainable and regressive. It’s time for a transparent, fair, and progressive overhaul—one that prioritizes students’ futures over fiscal balancing acts. What do you think? Is it time to demand change, or is this the new normal?
