Student Debt Soars Despite Payments

Graduates who took out Plan 2 student loans in England and Wales from 2012 are facing a growing problem: their loan balances are increasing despite making regular repayments. This is particularly concerning for those who took out loans when tuition fees nearly tripled. The higher interest rates associated with Plan 2 loans mean that for many, the interest accrued each year exceeds the amount they are repaying.

For example, one physiotherapist earning £50,000 has paid off around £450 in the last year but accrued over £500 in interest. Similarly, a project manager earning £72,000 has seen her loan balance hover around £47,000 for years. These graduates are in their early thirties and started repaying their loans a decade ago.

Research suggests that graduates with a £50,000 loan balance need to earn approximately £63,000 or more for their debt to begin decreasing. This has fueled anger, especially after the government announced plans to freeze the income repayment threshold for three years, meaning graduates will start repaying sooner and pay more monthly. The debt is written off after 30 years, but many feel this long period offers little relief.

Some high earners, like one economics graduate earning £85,000, have chosen to pay off their debt early by borrowing from family, saving an estimated £20,000 in interest. However, financial experts caution that voluntary early repayments are only beneficial for higher earners who are confident they will repay the full amount, warning against smaller overpayments that simply increase interest paid. Campaigns like Rethink Repayment are calling for lower interest rates and repayment rates, and for the government to reverse the freeze on the repayment threshold.