For many of us, the only thing worse than checking the bank account after a night out is checking our outstanding debt on the Student Finance website. I just did it. I can’t say I relished the experience. The Government’s decision to raise tuition fees in line with inflation every year from 2026/27 means that, from next year, a single year of university tuition will cost over £10,000 for non-Scottish UK students; an absolutely eye-watering sum many times higher than our European neighbours charge their own domestic students. “It’s not real money,” I said to myself as I closed the tab and shut the lid of my laptop, a pointless attempt to avoid the obvious; the money very much is real, and while it doesn’t do much now (other than sit and accrue hundreds of pounds’ worth of interest), the process of repaying these loans later in life feels much more like a graduate tax than a £30-a-month phone bill.
Once they have met the annual earnings threshold (£25,000 for those who started university after 2023, and around £28,000 for those who started before), university graduates pay back 9 per cent of their income every month to Student Finance. This process is automatic, and graduates never see the money themselves; just as regular taxes are deducted from income. Coupled with income tax and National Insurance contributions, graduates are effectively subject to a 37 per cent tax rate, rising to 50 per cent for higher earners.
But isn’t the point of student debt that it will eventually all be paid back? Well, not quite. The government forecasts that 45 per cent of the 2024/25 cohort will never pay back their loans—that’s even after reforms to the tuition fee system that came into effect in 2023. Debt is only wiped after forty years of repayment for English students (thirty for Scottish and Welsh students, and twenty-five for Northern Irish students), tying graduates to this higher effective tax rate until state pension age is in sight.
It’s deceptively difficult to get these loans to actually decrease in size, even after years of repayments. From the moment the first payment of tuition fees is made to the university, student debt is subject to interest in line with the Retail Price Index—a measure of inflation that consistently runs higher than similar indicators. On top of this, interest is added regardless of whether the earnings threshold has been met, meaning that by the time many graduates make enough money to begin repayment, their debt will have already grown by easily thousands of pounds. Analysis has shown graduates need to be earning around £66,000 per year, almost double the full-time median wage, to even make a dent in the ballooning sum.
What is most frustrating is that this tax doesn’t apply evenly to all graduates. The most fortunate (or their parents) have the funds to voluntarily wipe their debt only a few years after leaving higher education, or to even avoid having to take out a student loan in the first place. While obviously costly in the short term, in the long run the wealthy avoid having to pay interest, saving potentially tens of thousands of pounds. Tony Blair and Gordon Brown’s famous pledge to get 50 per cent of Britain’s youth into higher education has proven to mean little for class mobility; working and lower-middle class graduates are kicking their mid-twenties off to a flying start, saddled with almost inconceivable debt in a job market that doesn’t want what they have to offer.
Student loans are essentially a lopsided graduate tax with extra steps. Paying an extra 9 per cent of income to the government, throughout most of graduates’ working lives, in a seemingly doomed attempt to push down an ever-increasing number on a screen. If it’s all starting to sound a bit futile, take it up with Nick Clegg, not me.
Photo by Leah Collins for The Student
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Student loans: Loan or graduate tax?
For many of us, the only thing worse than checking the bank account after a night out is checking our outstanding debt on the Student Finance website. I just did it. I can’t say I relished the experience. The Government’s decision to raise tuition fees in line with inflation every year from 2026/27 means that, from next year, a single year of university tuition will cost over £10,000 for non-Scottish UK students; an absolutely eye-watering sum many times higher than our European neighbours charge their own domestic students. “It’s not real money,” I said to myself as I closed the tab and shut the lid of my laptop, a pointless attempt to avoid the obvious; the money very much is real, and while it doesn’t do much now (other than sit and accrue hundreds of pounds’ worth of interest), the process of repaying these loans later in life feels much more like a graduate tax than a £30-a-month phone bill.
Once they have met the annual earnings threshold (£25,000 for those who started university after 2023, and around £28,000 for those who started before), university graduates pay back 9 per cent of their income every month to Student Finance. This process is automatic, and graduates never see the money themselves; just as regular taxes are deducted from income. Coupled with income tax and National Insurance contributions, graduates are effectively subject to a 37 per cent tax rate, rising to 50 per cent for higher earners.
But isn’t the point of student debt that it will eventually all be paid back? Well, not quite. The government forecasts that 45 per cent of the 2024/25 cohort will never pay back their loans—that’s even after reforms to the tuition fee system that came into effect in 2023. Debt is only wiped after forty years of repayment for English students (thirty for Scottish and Welsh students, and twenty-five for Northern Irish students), tying graduates to this higher effective tax rate until state pension age is in sight.
It’s deceptively difficult to get these loans to actually decrease in size, even after years of repayments. From the moment the first payment of tuition fees is made to the university, student debt is subject to interest in line with the Retail Price Index—a measure of inflation that consistently runs higher than similar indicators. On top of this, interest is added regardless of whether the earnings threshold has been met, meaning that by the time many graduates make enough money to begin repayment, their debt will have already grown by easily thousands of pounds. Analysis has shown graduates need to be earning around £66,000 per year, almost double the full-time median wage, to even make a dent in the ballooning sum.
What is most frustrating is that this tax doesn’t apply evenly to all graduates. The most fortunate (or their parents) have the funds to voluntarily wipe their debt only a few years after leaving higher education, or to even avoid having to take out a student loan in the first place. While obviously costly in the short term, in the long run the wealthy avoid having to pay interest, saving potentially tens of thousands of pounds. Tony Blair and Gordon Brown’s famous pledge to get 50 per cent of Britain’s youth into higher education has proven to mean little for class mobility; working and lower-middle class graduates are kicking their mid-twenties off to a flying start, saddled with almost inconceivable debt in a job market that doesn’t want what they have to offer.
Student loans are essentially a lopsided graduate tax with extra steps. Paying an extra 9 per cent of income to the government, throughout most of graduates’ working lives, in a seemingly doomed attempt to push down an ever-increasing number on a screen. If it’s all starting to sound a bit futile, take it up with Nick Clegg, not me.
The stars are not aligning, Swinney
Photo by Leah Collins for The Student
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