A third of students who started university since fees were introduced in 1998 are earning too little to make repayments on their loans, ministers have admitted.
Nearly 400,000 graduates have not made repayments on their loans up to seven years after they graduated because they are not yet earning above the £15,000 threshold. It comes amid concerns that graduates now face the toughest time in a generation as firms cut down on recruitment in the credit crunch.
Students leaders are warning that the promise of cheap loans to pay for fees has all but evaporated, with the RPI, the rate of inflation, running at 4.8%.
Official figures, released in response to a parliamentary question from the Liberal Democrats, suggest that the financial return on the £20,000 debt most students graduate with is slow to arrive. Ministers claim graduates earn up to £100,000 more over their lifetime, but figures show that up to seven years after graduating a third are not yet making repayments.
Of the 1,237,300 students who still had money outstanding on loans taken out since fees were introduced, 384,300 had not begun repaying the loans at all.
Stephen Williams, the Lib Dem spokesman for universities, said: "As the financial crisis worsens the burden on new graduates is going to be even greater."
Wes Streeting, president of the National Union of Students, said that 4.8% added to loans to account for inflation made a "myth" of the promise that the loans were cheap for students. One graduate who received her annual statement last week said she had paid £650 in the last year on a £12,000 debt, but after the RPI was added had paid off only £70 of her original loan.
