High interest rates mean that, for the vast majority of recent graduates in England, student loans have become the equivalent of running up a down escalator. Anyone who started university between 2012 and 2022 is now paying 7.6% interest on what they borrowed, meaning that almost all will see their loans go up by more than they repay this year.
Personal finance reporter Laura Purkess tweeted last week that the interest she’s been charged so far this year is three times what she’s paid off; the replies were filled with similar stories. Many graduates are watching debts in excess of £60,000 balloon, despite having 9% of their earnings above £27,295 deducted. Little wonder that Andrew Adonis, former education minister under Tony Blair, a few years ago dubbed the system “Frankenstein’s monster”.
Who created this monster? In 2012, Conservative ministers tripled the tuition fee cap, now £9,250 a year, charged for virtually every course. Universities enjoyed a huge jump in undergraduate funding from just over £10,000 a year to about £16,000; inflation has whittled that back down to 2011 levels. And student loan terms were made less favourable: higher interest rates, with the loan wiped 30, not 25 years after graduation – significant because many students never repay their debt in entirety, meaning they effectively pay an extra 9p of income tax for every pound they earn above the repayment threshold. For students starting university in 2022, the total government subsidy for their degree would have been about £15,000 each on average as a result of almost 30% of the value of their collective loans being written off, with a middle-earning graduate repaying about £30,000 in real terms.
That is, until the government in 2022 introduced a huge and retrospective change to the loan terms for all undergraduates starting between 2012 and 2022. It sounds incremental on paper: the government froze the repayment threshold for a few years, and then said it would increase more slowly than originally planned. But it means that middle-earning graduates who started in 2022 will end up repaying around £47,000; nearly £20,000 more; the government write-off shrinks to just 2% of their collective loans, with just a £3,600 subsidy per student.
This huge but little-understood change was overshadowed by changes the government also announced to loans for the 2023 cohort onwards: with a lower repayment threshold, a lower interest rate but a longer write-off period, the loans system for them is less generous than the original terms of the 2012-22 loans, but more generous than the loan terms for 2022 starters, with a total government of subsidy of about £8,500 per student, leaving a middle-earning graduate repaying about £43,000 in real terms.
The upshot is that rising fees and changing loan terms have loaded more of the cost of a degree on to young people and less on to the taxpayer, inflicting steeper marginal tax rates on graduates in their 20s than older graduates for most, if not all, of their working lives.
That makes it even more urgent that we ask what they get for this, particularly as some universities areclearly angling for fees to go up further. Universities tout the “graduate premium”: research that suggests the average lifetime earnings gain of attending university is £130k for women and £240k for men, or £100k and £130k respectively, net of taxes and loan repayments. Yet these estimates mask huge discrepancies – three in 10 graduates end up with lower lifetime earnings than those who don’t go to university. They relate to the cohort of graduates who went to university 20 years ago; other research suggests the “graduate premium” has been declining over time. And almost a third of graduates don’t even end up in a graduate job. Just 37% of students think their degree is value for money.
There are also questions about how much any extra earnings result from the real value of a degree – the skills it develops – and how much from the assumptions an employer makes based on the fact of your degree certificate. We simply don’t know, because there is no objective measure of the skills boost a degree provides; universities mark their own homework in awarding degrees. Just as there are excellent and mediocre schools and hospitals, there will be excellent and mediocre degree courses; but students have no idea which is which when applying to university.
A ludicrously stratified university system that sorts students with three As and three Bs into different institutions to study the same subject allows some universities to point to the high earnings their graduates go on to achieve as a measure of quality, when that will be largely because of the fact that they cream off the highest-achieving pupils, who disproportionately come from the most affluent backgrounds. The injustice is that young people are collectively paying billions towards a system whose net effect is almost certainly to cement class privilege. As universities have expanded, we have seen a decline in other aspects of the university experience, for example some students being forced to live in other cities because of accommodation shortages.
At least universities are on a political hiding to nothing when it comes to increased fees; polling by Public First found almost universal public opposition to the idea. But this leaves the question: per-pupil secondary school funding is significantly lower than per-student university funding despite the fact schools operate on a more intensive model. Is there no way of delivering high-quality tertiary education at lower cost, even taking into account that some degrees like lab-based science will be much more expensive to deliver? Take a history course: a good chunk of those £9,250 fees will be cross-subsidising other courses and paying for university pensions; is it fair to ask a student to stump up for that, or should it be the government?
Anyone asking these questions tends to be dismissed as anti-aspiration, or accused of wanting fewer young people to go to university. On the contrary: I think we should be expanding quality educational experiences to as many school leavers as we can. But it’s wrong to conflate that with a defence of a bloated system in which ministers and universities spend the future earnings of young people with far too little accountability.
We can’t look young people in the eye and tell them the degrees that are a prerequisite for so many jobs represent a good deal for them. It’s time to take on Frankenstein.