I was lucky enough to get a free university education, back in the early 1990s, but these days you have to take out a loan to cover tuition fees.
This may well seem fair enough: you borrow what you need, pay back a chunk of your income once you’re earning enough, and if there’s still money left after a few decades, it just gets wiped out.
However for some graduates, they feel like they are stuck with a perpetual debt, which is especially the case for those stuck with Plan 2 loans.
The “30-Year Debt Sentence”
Take Helen Lambert’s story.
She’s an NHS nurse who borrowed £57,000 for her degree. She started paying it back in 2021 and has already put more than £5,000 towards her loan. But even after all these payments her debt now stands at £77K, thanks to high interest rates....
Some years, Plan 2 loans have hit interest rates around 8%. That means hundreds of pounds in interest piling on every month. So, even if you’re paying back on time, your actual balance barely moves, and for a lot of people, it has gone up.
Most graduates with these loans will never pay them off completely. Instead, the debt just follows them around for up to 30 years before it’s finally written off. The Institute for Fiscal Studies has pointed out that for many, it’s decades of payments with no real hope of clearing the slate.
It’s no wonder some people say it feels less like a loan and more like a “graduate tax” - another chunk taken out of your pay packet for most of your working life.
Fiscal Drag and the Graduate Squeeze
There’s more. The government hasn’t raised the threshold at which graduates start repaying their loans. Right now, that’s just under £29,000. If you earn more than that, 9% of everything over the line goes straight to your student loan.
But here’s the catch: because the threshold isn’t moving, as wages go up with inflation, more of your income gets pulled into repayments. Economists call this “fiscal drag.” You end up paying more each year, even if you’re not actually getting richer in real terms.
This hits early-career professionals—teachers, nurses, social workers, especially in the public sector—pretty hard. When you stack student loan repayments on top of income tax and national insurance, it honestly feels like you’re paying a third tax on your earnings.
Some experts even worry it’s putting people off certain careers or making them think twice about earning more. That’s pretty worrying for the UK, where productivity has been a problem for ages.
A New System — But Is It Really Better?
In 2023, the government rolled out Plan 5 loans for new students.
At first, it looks like an improvement. The interest rate is now set at the rate of inflation (RPI), not inflation plus up to 3%. So, in theory, debts shouldn’t spiral out of control quite as quickly.
But at the same time the threshold for repayments dropped to £25,000, which means people start paying back sooner and for longer. Sure, the interest won’t rack up as fast, but now repayments stretch across even more of your working life.
Final thoughts....
There's something very unfair about this... imagine someone who earns a relatively low amount for 20 years and then sees quite a rapid increase.... they could accumulate A LOT of debt in those early years and the be paying large amounts as their income increases later but still never pay the debt off thanks to the extra accumulated early on.
I'd certainly be thinking twice these days about taking out a loan for university...