A graduate tax could replace student loans, according to the former director at the student regulator, who called the current system “doomed”.
Chancellor Rachel Reeves faces growing calls for change after she defended student loans despite the amounts owed by graduates becoming harder to pay off.
Former director of the Office for Students, John Blake, who stood down last month, has now claimed reform is inevitable and the government must listen to graduates with mounting debts as interest rates soar.
“The English student loan system is doomed,” he told The Times. “Not because it’s a bad deal - on paper, it’s remarkably generous. But those who built it did not factor in what it would feel like once the repayments started ramping up.
“To a generation of graduates now entering their early thirties, watching nine per cent of every paycheque disappear while their debt total somehow keeps growing, it feels oppressive. It feels like an incomprehensibly unfair deal they did not understand and now cannot escape. And a system that feels so suffocating to so many is fundamentally broken, no matter how many graphs about average graduate salaries we make.”
Those on “Plan 2” loans, who started university between 2012 and 2023, are charged interest of RPI plus up to three per cent from the beginning of their studies. Student loan borrowers on Plan 2 in England and Wales repay nine per cent of their income once they earn at least £28,470 annually. The loan is written off after 30 years.
Whether or not the loan was financially beneficial to university hopefuls wasn’t considered, according to Mr Blake, because: “if it isn’t, you’ll never pay back what you borrowed, and you’ll never have to pay your student loan back ahead of, say, buying food”.
But he added: “It isn’t playing out like that: the frozen repayment threshold means that even those at an entry level of their profession can earn enough to have them paying back, but their debt is such that, unless they reach the very, very top earning brackets, they aren’t going to be clear of it before that retirement write-off.
“Every year the Student Loans Company sends them an update, and for many, that shows that they’re further in debt now than they were when they left university. It feels overwhelming, to lose nearly a tenth of your earnings to not even make a dent in your borrowing, especially as the cost of living gallops up around you. That you won’t be paying your student loans out of your pension isn’t, it turns out, much comfort.”
Martin Lewis, founder of MoneySavingExpert, has urging Ms Reeves to rethink freezing the student loan repayment threshold. He told BBC Newsnight last week: “People on Plan 2 loans have above-inflation loans that are linked to inflation.
“So when we’ve had high inflation, their interest rates have gone up and that has been particularly painful. And even though those rates have come down a little, well, you’ve still got a lot more now added on top of your loan, which makes it more difficult.”
Health secretary Wes Streeting has now said the debate surrounding student loans is “worth having” as it feels “quite tough” for young graduates.
As a former president of the National Union of Students, he said that while he thought it was fair to ask graduates to make a financial contribution: “In all of the systems that we’ve seen to charge students, or indeed graduates, I don’t think any of them have got it right.”
“The long and short of it is, I do think we need to look in the round at all of this. I think there’s a debate for us to have as a country about what our priorities are. And there are all sorts of things you could do with student finance. For example, you could say the interest rate is too high or you could say the repayment threshold is too low, or you could say that the amount that’s taken each month is too high.”
Alex Stanley, vice president for higher education at the National Union of Students, said: “We are having a national debate; the call is loud and clear. The system is broken beyond sticking plaster repairs. It isn’t working for students. It isn’t working for graduates. It isn’t working for universities. The Chancellor needs to reverse her decision to freeze the repayment thresholds.”
Will student loan rules be Labour’s next U-turn?
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