George is “lucky,” he says – he has a job he likes which pays him well. But he pays around £2,000 to the Student Loans Company every year, and his loan is still increasing, because the repayments are less than the interest applied.
Graduates on Plan 2 student loans pay 9% of their income above the repayment threshold, and current interest on these loans is set at RPI inflation plus 3% – or around 7.3% currently.
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“I’m very fortunate, I work at one of the biggest companies in the UK, and I do ok, but I’m still not even servicing my debt,” George said. “Instead, it’s just a few hundred pounds every month that feels like down the drain.”
The loan system is meant to load the costs of university on graduates who can afford to pay, by only requiring graduates to repay once their earnings surpass a certain threshold.
In England, student loans are repaid through the tax system and are split into different plans depending on when and where someone studied. Graduates only begin repaying once their income passes a set threshold, and they repay a fixed percentage of anything they earn above it. Interest is added to the outstanding balance, but any remaining balance is written off after a fixed period – typically 30 years for those on older Plan 2 loans, and 40 years for newer Plan 5 loans.
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But this system is now “broken,” claim campaigning organisations, as punitive interest rates and freezes to the salary threshold push lower-earning grads into repayments while their debt continues to grow.
New figures show that £15bn in interest was added to student debt in England in 2024-25, while only £5bn was paid back.
Alex Stanley, the National Union of Students vice president for higher education, graduated in 2023, with over £50,000 in debt. He understands the original intention of the system – but says it is no longer working this way.
“The intention was that you’d have a few years to sort of find your feet, hopefully find yourself somewhere to rent, and be in a comfortable enough financial position before you then have to start paying it back,” he told Big Issue.
“But that’s not the reality for the majority of students. They are in tens of thousands of pounds of debt that they start paying off pretty much from day one, because the national minimum wage has increased and the thresholds at which you start paying off your student loan have frozen.”
At the autumn budget in November last year, chancellor Rachel Reeves announced that the salary threshold at which graduates on Plan 2 loan schemes begin to repay their student debt would remain frozen at £29,385 for three years from April 2027.
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The Office for Budget Responsibility predicts that the national minimum wage will rise to about £28,995 by 2030 – just £400 lower than the frozen student loan repayment threshold.
Monthly repayments have serious knock-on effects said a spokesperson for Rethink Repayment, a campaign group calling for student loan repayments to be reduced.
“High monthly repayments are also making it harder for young people to save to buy houses, start families and save for retirement – all of which will have dire long-term economic consequences if they are not addressed.”
But Nick Hillman, director of the Higher Education Policy Institute (HEPI), says that despite growing dissatisfaction, the student loan model remains, in principle, a progressive form of funding.
“It meant people who did better financially as a result of their degree paid back more than people who didn’t do so well,” he told Big Issue.
“These top rates of interest that people are talking about a lot are only paid by people on salaries of around £45,000 a year now. Now, if you’re living in central London or you’re trying to settle down, or you’re trying to buy a house, £45,000 can be eaten up very, very quickly.
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“But the highest interest rates only get applied to debts of people on high earnings or when they were studying.”
This is “all history” he adds – newer Plan 5 loans, offered to people starting their course after August 2023, only apply interest at the rate of RPI inflation. The debt is not wiped for 40 years, however.
Hillman argues that scrapping fees altogether would create different problems, particularly around access.
“There are ways you can fund universities via taxpayer’s money, but Scotland, for example, very tightly controls how many places are available to Scottish students each year,” he says.
“That used to happen here. Tens of thousands of young people used to apply to university every year and they were good enough to go, but they couldn’t find a place because the universities were full.”
Instead of scrapping fees or adjusting interest rates, Hillman urged the government to focus on maintenance loans and grants. The biggest problem for poorer students is day-to-day living costs, he said.
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“Obviously repaying these loans after you’ve got university is a pain in the ass, and one would much rather not have to pay and pay them back, of course. But what people are worried about while they’re students is: ‘have I got enough money to pay my rent? Have I got enough money to get the bus to campus for the lecture? Can I afford a laptop? Can I get the landlord off my back?”
In the last decade, HEPI research shows that there has been a doubling – from one third to two thirds – in the proportion of students who do paid work during term time.
“That’s why it annoys me when people say students are snowflakes,” Hillman said. “They’re the opposite. They’re working every hour they have so they can pay their landlord and buy their bus pass.”
For graduates like George, the struggle is admittedly less about day-to-day survival. But there is still a social mobility aspect. The financial impact of punitive interest is hundreds of pounds a month, he says – a fee his friends who had parental help with university fees don’t have to worry about.
“My marginal tax rate is 51% – that’s 40% income tax, 2% national insurance and 9% student loan,” he said. “That’s a very high rate of tax for what is not a massively high salary. It genuinely makes you think twice about going for promotions or earning more.”
“The interest rate is so punitive, like if you took a bank loan, you might get 4% interest rate. If you took a mortgage, you might get 3.5%, But my interest rate is RPI plus 3%, which is around 7.5% at the moment.”
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George says he’s “happy to pay for uni.”
“I objectively earn more because I went to uni and I had a great time. I am very privileged to have gone,” he said. “But I will never be able to pay off this loan.”
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