Government freezes tuition fees to ease student loans – but at current levels, it won’t make much difference

image: students sitting on steps
Monday 2 October 2017 - 17:30

The announcement that the Government is to freeze tuition fees at £9,250 and lift the income level that triggers loan repayments to £25,000 is obviously helpful – but no-one should be under any false impression that graduates have suddenly had a heavy burden lifted from their shoulders.

Since tuition fees were first brought in during 1998, graduate debt has risen rapidly to its current level of around £50,000 (accelerating to £57,000 for poorer undergraduates who receive higher maintenance loans), while the overall current outstanding value of all tuition fee and maintenance debt has now hit £100 billion. 

While students are currently required to repay loans through a deduction of 9% on any earnings over £21,000 – many may not fully understand how exactly this impacts on the outstanding balance of their debt. Taking an example of a graduate on a generous starting wage of £41,000, the annual interest applied to their debt is currently 6.1%, which means many will not complete their payments within 30 years (after which time the remaining loan is written off). Assuming their salary kept pace with current inflation and rose by 3% each year – after 30 years they would have paid a whopping £118,853, but would still have an outstanding debt of over £17,000. 

Once the income level above which students will need to start making repayments rises to £25,000, and assuming the same example of a graduate starting on £41,000 who therefore now needs to make repayments initially on £16,000 worth of earnings (assuming the interest rate remains at 6.1%), that same graduate would have an outstanding debt of nearly £48,000 at the end of their 30 year repayment schedule.

For those undergraduates from disadvantaged backgrounds who are coming out of university with £57,000 debts, following a same earnings pattern would in fact result in their student loan debt rising to £58,496 at the current 6.1% interest rates after 30 years, while their remaining debt after the income repayment threshold rises to £25,000 would be nearly £90,000 after 30 years.

Size of initial loan Interest added (annual) Start of income level for repayments Total loan repayment over 30 years Size of remaining loan after 30 years
£50,000 6.1% £21,000 £118,853 £17,138
£50,000 6.1% £25,000 £108,053 £47,872
£57,000 6.1% £21,000 £118,853 £58,496
£57,000 6.1% £25,000 £108,053 £89,230


Mark Farrar, Chief Executive, AAT said:

"University provides many people with a great start in life, but there’s no doubt that the current levels of debt some graduates are finding themselves in are quite ridiculous, and in many cases, they will never be paid back in full before they are written off after 30 years – meaning that it may not matter whether their initial loan is £50,000 or £57,000.

Students really need to ask themselves whether they really wish to get into such debt so early in their lives, given that they also have to plan for other large financial commitments such as getting onto the property ladder or saving for a pension. Likewise, with so much student debt likely to ultimately be written off over the coming years, will future Governments be able to fund the gap?

Research conducted by AAT this summer has shown that schools highlight the university route to students, with 63% of 16-19 year olds experiencing pressure from their school to choose to go towards university – but there are other routes available such as undertaking a high-level vocational qualification or apprenticeship. 

With many companies nowadays seeking a diverse workforce, being a university graduate is not the only entry route into the career of your choice. In addition, choosing a non-university pathway can help young people avoid these significant graduate debts, and instead allow them to gain the skills while earning a wage in the workplace."