Three-quarters of graduates will never pay off student loan, says major report

Graduates will still be making payments into their 50s, IFS report finds

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Students are graduating with such large debts that a majority will not be able to pay them off, new findings by the Institute for Fiscal Studies (IFS) say.

Research shows that graduates will be still be paying off their debts into their 50s, after government legislation removing maintenance grants in 2011 significantly increased student debts.

Under the new system, 77.4% of students will never fully repay their debts, compared to 76% of students under the 2012 system, which featured maintenance grants, and only 41.5% of students under the 2011 system.

The think-tank found that changes to the system in 2015 will disproportionately affect students from poorer economic backgrounds, especially those with parental income below £25,000. The report states that, as a result of the scrapping of maintenance grants in favour of higher loans, “students from the poorest backgrounds will accrue debts of £57,000 (including interest) from a three-year degree”.

The report showed that while the changes increase the total cash-in-pocket available to students from low-income households by £1,500 per year, the removal of grants significantly increases their debt burden upon graduation. Students eligible were previously able to obtain up to £3,482 per year in grants under the 2012 system.

The report also found that, due to increasing interest rates, high earners could pay up to £40,000 solely in interest payments. It notes that interest rates on student loans are set to rise in line with inflation from 4.6% to 6.1% in September. Interest rates on student loans are set at RPI plus up to 3% (depending on income).

The report found: “The average student accrues £5,800 of interest while studying, meaning that they borrow £45,000 but find on the day of graduation they have a debt of £50,800.”

According to the report: “The combination of high fees and large maintenance loans contributes to English graduates having the highest student debts in the developed world.”

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Universities minister Jo Johnson said: “The government consciously subsidises the studies of those who for a variety of reasons, including family responsibilities, may not repay their loans in full.

“This is a vital and deliberate investment in the skills base of this country, not a symptom of a broken student finance system.

“And the evidence bears this out: young people from poorer backgrounds are now going to university at a record rate – up 43% since 2009.”

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