Student loans branded “oppressive” as calls for graduate tax grow

Calls for the “doomed” student loan system to be replaced by a graduate tax are increasing as over two-fifths of people believe that the government should write off some or all student debt.

John Blake resigned as Director of Fair Access at the Office for Students last month and told The Times that the system feels “oppressive” for students who see 9% of their paycheque disappear, only for their total debt to keep growing.

Due to higher inflation, those on Plan 2 are seeing their debts increase rapidly

He argues that “it feels like an incomprehensibly unfair deal they did not understand and now cannot escape. And a system that feels so suffocating to so many is fundamentally broken”.

According to a YouGov poll, 44% believe the government should write off some or all student debt, with 63% of people believing that paying 9% on income over £28,470 is too high, and nearly half of respondents saying 3% is approximately the fair tax burden.

Anger is largely directed at the ‘Plan 2’ Student Loan, applying to students in the academic years 2012/13 to 2022/23. These students pay an interest level of Retail Price Index (RPI) + 3%, unlike students thereafter who only pay RPI.

It is odd to call it a loan and then mess around with the parameters of it retrospectively

Paul Johnson, former dir. Institute of Fiscal Studies

Due to higher inflation, those on Plan 2 are seeing their debts increase rapidly. Helen Lambert, a nurse, borrowed £57,000 and usually pays £145 a month from her paycheque, only to see more than £400 added to her debt each month. After finishing her studies in 2021, her debt has now risen to £77,000.

Furthermore, in November’s budget, Rachel Reeves, Chancellor of the Exchequer, announced the repayment threshold, which is supposed to increase with inflation, would be frozen for three years at £29,385.

A graduate tax was suggested in 2018 […] with nothing paid on earnings up to £10,000 a year

From its implementation in April 2027, it is estimated to bolster public finances by £400 million annually.

Paul Johnson, the former director of the Institute for Fiscal Studies, said: “It is odd to call it a loan and then mess around with the parameters of it retrospectively. That system is more along the lines of a tax than anything”.

John Blake believes that “We may need to move to a formal graduate tax. […] Even if the system computes, it has a sense of being ridiculous when you’re in it”.

A graduate tax was suggested in 2018 by the MillionPlus think tank, with nothing paid on earnings up to £10,000 a year. It would then increase to 2% up to £25,000, then to 2.75% up to £42,000, and 3.5% above that. At £50,000, the effective rate would only be 2.1%.