Why the Government must rethink unfair student loans - Jayne Dowle

As the youngest of this cohort are now in their thirties, a time when they should be building careers, earning higher salaries, buying first homes and planning families, their anger can no longer be dismissed as student whingeing. This is real, it affects lives and the economy.

Every pound a graduate in this position is asked to pay in interest on their student loan – made up of tuition fees and any maintenance loan they received, subject to parental income means testing – is a pound that is not being spent on personal finance, retail, investment in property, pensions, all manner of economy-boosting things.

Almost all – that’s 89 per cent – of undergraduates in England take out student loans to finance their studies. Unless your family is wealthy and can pay tuition fees upfront, currently £9,535 per year for most full-time degree courses, and cover your living costs, you have no choice.

Students who started courses after 2023 are on a new student loan plan, Plan 5, which promises to not be onerous as Plan 2.

But the point remains, as campaigners, from personal finance guru Martin Lewis to Oli Dugmore, a vociferously outspoken executive editor at The New Statesman magazine point out, student loans are effectively a regressive tax, targeting those with the lowest means in the first place.

The money this generation is being asked to hand over equates to thousands and thousands of pounds in repayments, with interest rates set way above the retail price index (RPI). This means hundreds every month goes out of salary payments, into a black hole of debt.

Mr Dugmore, who studied politics at Cardiff University, graduating in 2015, has spoken out eloquently in podcasts, recently explained on the BBC’s Question Time that he left university owing around £37,500, but the most striking figure was the interest he has to pay.

He accuses the then Conservative-Lib Dem Coalition government of mis-selling his student loan; no consumer financial product would ever come with no guarantee of fixed monthly payments or undertakings regarding potential interest rate rises.

Since 2012, Mr Dugmore told presenter Fiona Bruce, the interest alone on his loan had reached £32,000. “Was it mis‑sold to me when I was told it would cost nine grand a year? Yeah, I’d say so.”

And now the pressure has ramped up politically. Chancellor Rachel Reeves, who graduated from Oxford with a 2.1 in Politics, Philosophy and Economics in 1990, followed by a Master's in Economics from the London School of Economics, thereby avoiding punitive tuition fees, is holding graduates to ransom.

At the Autumn Budget, Reeves decided to freeze the salary threshold at which Plan 2 graduates start to repay their loan, currently at nine per cent of their income over a certain threshold every month. In April this threshold will rise from £28,470 to £29,385 and then will not change for the next four years, until 2030.

This means that more graduates will be dragged into repaying earlier than in previous years; also, arguably, this places a cap on aspiration. What, goes the argument, is the point in being ambitious if rather than enjoying a salary increase, hard work and graft takes improved earnings away?

To add insult to injury, Reeves has then told graduates suffering under punitive Plan 2 loans that their punishingly over-the-odds payments are vital because they are going towards keeping the NHS afloat.

Improvements to the NHS, including reducing waiting lists, “required putting money in”, she said, angering her own Labour backbenchers in doing so.

If I was a Plan 2 graduate – or the parent of one – I would be absolutely furious at this abhorrent example of governmental gaslighting. Effectively then, graduates are to be taxed twice, directly, and through student loan repayments, to prop up the ailing health service?

Wasn’t the argument for student loans always that the funds raised paid for an individual’s education?

In all of this, the Education Secretary, Bridget Phillipson, has kept very quiet. No longer can she put off reform of the whole student loans system. The Chancellor has basically admitted that loan repayments are not linked to education but go into the swirling mess that is the government coffers. How can that be “fair”?