A Decade On, I Am Still Repaying My Student Loan

In 2006, I did what everyone (with the exception of three people) in my sixth form year did. I went to university. I didn’t think twice about the debt I was taking on – tuition fee loans with maintenance loans on top – I just did what I was told. I was the first person in my family to go to university. It was, so people kept reminding me, "a very big deal". I didn’t understand interest rates. I didn’t know what it meant that the interest on the student loans I was taking out was linked to the Retail Price Index (RPI). I didn’t even know what that was. Nobody else seemed to, either. 

RPI, it turns out, is a measure of inflation and it’s how the interest rate on student loans is calculated. In short, it is the rate at which the price of things – like housing costs – rises. It’s also used to calculate train fare increases. But it’s fallen out of favour with some economists as a way of determining increases because it doesn’t account for the fact that, these days, consumers will change to a different provider if prices rise. And as we all know, house price inflation is completely unhinged from the rest of the economy now. I did not learn this at school or university. Unless you studied economics, the odds are that you didn’t either. 

In 2020, a parliamentary briefing found that there has been "a gradual real reduction" in the support available to students since the 1960s and noted that what is available today is "not enough to cover student living costs, particularly due to increases in accommodation costs." On top of that, studies like that carried out by Dr Lorenza Antonucci and published in Student Lives in Crisis: Deepening Inequality in Times of Austerity show that because of how the student finance system has been restructured in recent years, university education in England is entrenching inequality. This is absolutely something we should have been taught to understand. 

Sign the papers. Just go. Get a degree. That’s social mobility in action, right? It’s the British equivalent of the American dream: the idea that anyone, regardless of their background, can change their fortunes and their class by entering higher education (or buying a house). Over a decade later, here I am. Unsure which social class I belong to. And while my education was enriching and I now earn an above-average salary, I am by no means what you could call rich. 

Earlier this year, I was fortunate enough to be paying a sizeable tax bill on my freelance work because my earnings have increased over the last few years. That also meant handing over thousands of pounds to the Student Loans Company. It stung. It felt like paying income tax twice. And if you think about it, though they are not advertised this way, student loan repayments are a form of income tax. 

Dr Antonucci points out that I (and you, if you took out student loans to go to university) have never received my full post-tax income since graduating. "Fundamentally," she explains, "your student loan repayments are an income tax. They are a percentage of your salary that you don’t see. It is a de facto tax." This, she argues, is entrenching inequality because students from low-income backgrounds who don’t earn huge amounts after graduation are taxed for longer periods after leaving university. And because of changes to student finance since 2010, things have got worse. 

Making the gut-wrenching transfer of funds for my student loan repayments from my Monzo to HMRC prompted me to call the Student Loans Company and find out exactly how much I still owe. In 2006, I took out a total of £18,677.40 in loans. Today, despite nearly a decade of work, I still have £12,870 left to repay. The interest on that figure will fluctuate depending on my income over the coming years but, right now, it’s RPI + 3%. It’s unlikely that I will pay off the outstanding amount any time soon. 

Now, I am lucky in so many ways. I went to university before David Cameron's government raised fees from £3,000 to £9,000 a year in 2010 (coming into effect in 2012). This means I have what’s known as a Plan 1 loan. Those on Plan 1 pay a lower rate of interest than current students. Those who started university after September 2012 in England and Wales have a Plan 2 loan; for students who started university in 2020, the current rate of interest is 5.6%. A third-year student who owes £30,000 will have £1,680 added to their debt this year alone. 

You might argue that my student loan finance could just about be justified as a loan. But for anyone taking on the current levels of debt and interest, that seems harder. The Sutton Trust has argued that it is a graduate tax in all but name, which falls most heavily on those from poorer backgrounds. In 2017 they published a report called Fairer Fees which found that students from households in the lowest 40% of earners take on average debts of £51,600 (before interest) in order to attend higher education. 

Student loan debt (for those on Plan 2) expires after 30 years. Unless they have family wealth, how many of today’s graduates will actually pay this off? The current average starting graduate salary is £24,000. 

When I went to university, not only were the fees and interest lower but I was able to benefit from a maintenance grant (and bursaries) because, at the time, my family was deemed low-income. The maintenance grant was a lifeline for me. It helped me to keep up with my friends, all of whom had allowances from their parents, while attending a university where we were not allowed to work for money during term time. Imagine that! So embarrassed was I about receiving the grant that I would pretend to my peers that I, too, had an allowance. If I’d known that one day it would be taken away from students from low-income backgrounds, perhaps I would have felt differently. 

Maintenance grants no longer exist. In 2015, in his Emergency Budget, then chancellor George Osborne announced that they were being scrapped. Why? They’d become "unaffordable" to the taxpayer in the age of austerity. He even argued that if he didn’t make this change, universities would "become under-funded". 

"I’m not prepared to let that happen," he said, selling the policy as conservative common sense. The thing is, this has happened anyway. In late 2020, the Institute for Fiscal Studies reported that English universities face a funding shortfall. This was not only because of the impact of the coronavirus pandemic but, their researchers said, because "there will be mounting long-term costs for the government, with a predicted £12bn shortfall in student loan repayments as graduates struggle to find work in a labour market devastated by the pandemic." 

Will the majority of today’s graduates ever be able to pay off their debt? When Osborne announced that tuition fees were increasing, he established a funding model for universities that only works if graduate earnings rise so that they can repay their loans. We don’t yet know what the true economic impact of the pandemic will be but, before it hit, the government’s own data on graduate earnings showed that they were stagnating in what the BBC called "a pay freeze permafrost". 

So where does this leave us? Dr Antonucci says there is cause for concern beyond what this means for universities themselves. She says that the new system is exacerbating the difference that already exists between those with and those without family wealth. 

"The grants have gone. The loans are not enough and the government quietly assumes that families can contribute and make up the shortfall," she explained. "But most families – even those we might call lower middle class or middle class – don’t have the amount of money that the government assumes they have."

"This," she adds, "is why I don’t like to use the terms 'working class' or 'middle class' because what we’re talking about is family wealth and the vast majority of students are being disadvantaged by the current system. Only those whose parents have capital are advantaged." Dr Antonucci is making an important point here, which former Labour leader Ed Miliband once tried to make. She's talking about the 'squeezed middle' – people in what researchers like her call 'intermediate social classes' who face increasing living costs despite being educated and seeming upwardly mobile.

There is a particularly big problem when it comes to covering costs outside of the classroom or lecture hall. In 2020 the National Union of Students found that half of student renters spend more than 75% of their monthly income on housing costs. Last November they surveyed students and found that, because of the impact of the coronavirus crisis, over two thirds of student renters (69%) are concerned about their ability to pay their rent.

If I were embarking on higher education now, because of my family’s socioeconomic status I would be forced to take on more debt than my wealthier peers. That is the reality for thousands of students. Is it fair? Dr Antonucci says no. 

"We know that students from low-income backgrounds end up taking out more debt on top of their student loans to make higher education work," she concludes. "To me this is the scariest aspect of the higher education system now."

An entire generation of undergraduates – now dubbed the Class of COVID – are looking at the future and questioning whether the hefty investment they’re making in their education will actually pay off. We all face uncertainty but young people know that it might take a decade for their fortunes to recover from the financial fallout of the pandemic. On top of that, those without wealthy families who can help out know that they could be paying off their student loans all the way into their adult lives. 

I'll clear my debt eventually and my repayments, while frustrating, are manageable. But it's 2021 and, in England, young people's fortunes are increasingly dictated not by how hard they study but by how much money their parents have.

How do we fix this? Dr Antonucci’s answer is simple: by recognising that student loans, in their current form, are an income tax and by putting pressure on politicians for reform. "Before 1998, it used to be the case that there were only grants and no loans," she explains. "Student funding was far more generous and egalitarian then – even though access to university was elitarian and limited. We can use elements of the old funding system in the current expanded higher education. And let’s not forget that the system we currently have was meant to be more cost-effective but what nobody talks about is the cost of managing it. A student basic income would be both more effective and efficient."