Came for a career, left with unyielding interest: The hidden cost of student loans

The fairness of England’s student loans system has once again been called into question, with an increasing number of students and graduates now contesting the heavy burden that its interest rates bring once they graduate. 

Graduation is supposed to be the start of financial independence, at least that is how it used to be. However, in a period where the Vice-Chancellor of King’s College London has argued that a university degree is not a “passport to social mobility” anymore, it has become the start of ‘never-ending’ repayment and increasing debt. 

It would be wrong to say that prospective students were lied to or mis-sold, but critical information regarding the implications of interest and how the loans were paid off has arguably been minimised, leaving so many graduates shocked to find that thousands of pounds of interest had been added to their debts. But is there really a “fairer” alternative without cutting more money from already struggling universities? 

Around 5.8 million people, who took out a student loan between 2012 and July 2023, are repaying tuition and maintenance loans under Plan 2, with interest charged at RPI inflation plus up to three percentage points depending on personal income. When created, such a scheme was, in theory, ‘affordable’ with repayments being income contingent. However, with high interest rates continuing to rise, graduates are left repaying for decades without even clearing the principal of their loan. The newer Plan 5 scheme, introduced in August 2023, is even harsher on graduates, with lower repayment thresholds and an extended repayment system. Designed to maximise repayment, it has instead made these loans resemble a semi-permanent tax on income, rather than the temporary investment in education that it was sold as. 

It is certainly true that not all students are aware of the vast interest that is added to such a debt

This raises a crucial question as to whether prospective university students have been repeatedly misinformed about higher education loan repayment, and whether more needs to be done to highlight the reality of repayment before they enter higher education. Even though details of student loans are publicly available, the way they are presented to young people is often considered unclear. Before students enter university, many are told that student loans are “not real debt,” that it’s “just another tax,” and that repayment is easy if students earn enough. While containing elements of truth, in the sense that repayment is far more lenient than other debts, how long repayments last, how little control graduates have over the final cost, and how interest compounds, is rarely fully communicated, to entice more young people to attend higher education. 

I repeat that this does not mean young people have been lied to, almost all enter university knowing of the £10,000s in debt that will ensue. But it is certainly true that not all students are aware of the vast interest that is added to such a debt. Schools and colleges should be doing more to both highlight this and provide alternatives for students who, fairly, do not see the value in university and the debt it brings. This is especially true in an age where trying to get 50% of young people into university is no longer “right for our times,” as Keir Starmer said in September 2025. 

For students who do attend university, one of the key reasons students often feel ‘misled’ is that the success of this loan repayment scheme is no longer upheld by the idea of the ‘graduate premium,’ where graduates can rely on a degree leading to more access to work and higher earnings. In the current job market, wages have stagnated, graduates are struggling to find jobs, and the cost of living has risen sharply. When such a guarantee has fallen, graduates are left shouldering the cost of a promise that has collapsed before them. 

The current system is unsustainable. It erodes trust in higher education by asking graduates to pay more for longer in uncertain times

However, we are left in a difficult position here: universities have become increasingly economically constrained, propped up by international student fees and loan-funded domestic fees. Reforms to the current student loans system – lowering interest rates, shorter repayment periods and more – threaten to expose the fragility of university finances across the UK. Furthermore, such reform would also force conversations about public funding for universities, a conversation that the UK isn’t politically ready for. 

The current system is unsustainable. It erodes trust in higher education by asking graduates to pay more for longer in uncertain times. It also entrenches inequality and leaves universities financially exposed and unable to respond well to reforms. 

Reshaping the student loans system will be difficult because academic institutions are under great pressure. Yet it is reasonable not to want to pay interest for forty years. If higher education is to remain a genuine public good, rather than a long-term consequence, more information and action must be taken to reaffirm its value.