Grace is 25. Her student debt: £69,000

With graduates facing a lifetime of debt – at 6.1% interest – pressure is growing for a rethink on tuition fees and maintenance loans. But what should replace them?
• Opinion: Penalising this generation is morally whiffy

When Grace Parkins opened her first statement from the Student Loans Company she wasn’t prepared for what she saw. After four years studying she discovered she was now more than £69,000 in debt.

Parkins was one of the first generation of students to sign up to £9,000 a year tuition fees. Like many recent graduates, she had no idea she was also racking up £8,000 of interest on her student loan while still at university. Students currently pay interest of 4.6% while they study, and this will rise to 6.1% in September. “That should have been made much clearer,” she says. “I didn’t expect that at all. All I really knew was that I wouldn’t be repaying until I earned £21,000 and my outstanding debt would be written off after 30 years.”

She is also paying the price for choosing the wrong degree at the outset and having to add an extra year. “I started off studying TV production and I wasn’t enjoying it,” she says. “I swapped to PR and advertising after a year because I just knew I had to do something I was passionate about. That mistake cost me about £15,000, including my living costs.”

Parkins, 25, graduated from the University of Westminster last year and now works for a PR firm in Leeds. She doesn’t yet earn enough to start repaying – it kicks in at 9% of earnings above £21,000. “One of the reasons I am not totally panicking now is that I know I’m never going to repay all of that £69,000,” she says. “The government should do something about the level of debt students take on. It put some of my friends off going to university.”

With universities set to increase their fees to more than £10,000 a year by 2020, widespread discontent about spiralling student debt looks unlikely to abate, and leading academics are warning that the government could be forced into a U-turn on fees.

Jeremy Corbyn’s pledge to scrap tuition fees encouraged student voters to turn out in their droves to vote for him. On the same day that Parkins opened her alarming loan statement, Theresa May’s top aide, Damian Green, the first secretary of state, admitted that anxiety about fees was “a huge issue” and required a national debate.

Professor Andy Green, a specialist on learning and life chances at the Institute of Education, says the current loans system is “morally indefensible”. He says: “This generation in many respects is doing worse than their parents and it looks like they will continue to do so into their 30s and 40s. When they enter middle age and around two-thirds of them still can’t buy houses, and they are paying back large amounts on their graduate loans, that will be a big issue. There is a crisis brewing.”

Green says that following the election the government cannot avoid grasping the nettle. “Clearly young voters found the idea of getting rid of fees attractive. Fees are back on the political agenda.”

His preferred solution is for the government to scrap fees and loans in favour of an “all-age graduate tax”, with those who enjoyed free higher education also contributing to the cost of today’s university courses by paying an additional tax of about 2.5%. “This idea wasn’t politically sellable 10 years ago, but it is now,” he says. “People are realising the huge amount of debt young people are taking on is pretty inequitable. And we now know just how many people are not going to pay back those loans, landing the taxpayer with the debt. The system isn’t working.”

A new analysis published by the Institute for Fiscal Studies last week found graduates in England left university with the highest student debts in the developed world, thanks to a combination of high fees, increased interest rates while studying and maintenance grants being replaced by loans. It calculated the average student would leave university with a debt of more than £50,000 – rising to an average of £57,000 for the poorest, who borrow more for their living costs. By contrast in the US, famed for its high fees, the average debt on graduation is $36,000 (£28,000).

The IFS found that three-quarters of graduates will never pay off their full debt, even if they are still repaying in their 50s. The government insists that this huge subsidy is a sign that the system is working by protecting those with lower lifetime earnings. But some experts say the system is out of control.

Michael Gove: fair for graduates to ‘pay something back’

Claire Callender, professor of higher education at Birkbeck, University of London, says: “The big issue for this government is the financial sustainability of student loans. The Office for Budget Responsibility [pdf] is estimating that student loan debt will peak at 11.5% of GDP in the 2040s. That is phenomenal. And this huge government subsidy is hidden. It’s all smoke and mirrors.”

She adds: “Grants are much better incentives to study than loans for working-class kids. Given the level of this hidden subsidy of loans, at what point is it more effective to switch to grants?”

Nick Barr, professor of public economics at the London School of Economics, and a leading advocate of income contingent student loans, is also critical of the current system: “We now have the worst of all worlds – a scary sticker price for a degree, coupled with a scary sized loan book, of which only slightly over half ever gets repaid.”

Barr argues fees are too high, and the government should bring back some of the teaching grant for universities so that the cap can be reduced. He points out that part of the reason for switching most of the funding to loans was “a cheap accounting trick to reduce measured public spending”.

But he also claims the government has shot itself in the foot by saying no one will start repaying their student loan until they earn £21,000. “Now many people do not repay in full by the time they hit 30-year forgiveness. As a result, the loan subsidises many graduates who don’t need help. Subsidising loans is a rubbish way of widening participation in university,” he says. “It would be better to have a loan that is largely self-financing and spend the savings on nursery and primary education.”

However, Nick Hillman, director of the Higher Education Policy Institute thinktank, who helped to push through the fees system, warns against knee-jerk policy changes on fees. “I’m not saying everything should be fixed in aspic, but rushing into changing student finance because of panic about an election that was really about Brexit and about Jeremy Corbyn would be a mistake. The system is a lot more stable and resilient than people think.”


Anna Fazackerley

The GuardianTramp

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