As a student in the UK, I know all too well the financial strain that comes with pursuing higher education. Tuition and living expenses can make the cost of a degree appear insurmountable. And for many of us, taking out student loans is the solution. However, as we accumulate more debt, it becomes clear that the student loan system is not only harming individual borrowers; it is also impeding the UK economy as a whole.
The Scale of the Problem
The staggering amount of £20 billion is handed out to students in England each year, with 1.5 million young individuals taking on debt in hopes of securing a better future. But as these loans pile up, the total debt has reached a mind-blowing £182 billion by March 2022. The government predicts that by the mid-2040s, the amount of outstanding loans will be an astronomical £460 billion. That's enough to make your head spin! Imagine the impact that this is having on recent graduates and the new generation of students, who are now facing average debt of £45,800 upon completing their course. This is a heavy financial burden for them to bear, as they start their adult life already buried in debt.
Even though it may seem like the government and large insititutions are making a lot of money of the interests of the loans. The UK has a repayment system for student loans that takes into account a borrower's income level. Under this system, graduates are only required to start repaying their loans once they reach a certain income threshold, known as the repayment threshold
You know, the UK has a pretty sweet deal when it comes to student loans. Here's how it works: if you're earning less than a certain amount, currently £27,295 a year, you don't have to pay a dime back. That's right, you can just forget about it! But once you start earning more, you'll have to start chipping away at that debt. Your monthly payments are based on how much you're earning, so if you're not making much, your payments will be low, and if you're raking in the cash, you'll pay more. And if you're still paying off your loan after 30 years, the government will write off the remaining balance. This doesn’t sound that bad now, does it?
Are Student Loans Being Paid Back?
Due to the current way the student loans are running, not a lot of students actually pay back their whole loan.
The Government expected that around 20% of full-time undergraduates starting in 2021/22 would repay them in full. - UK Parliament
This is not a very high number of people who fully pay back their loans. This is very concerning.
Since a large proportion of student loans are not fully repaid, it can create a significant financial burden for the government. The UK government has to bear the cost of writing off unpaid loans, which can add up to a substantial amount over time and contribute to the overall public debt. This can also create an ethical issue around fairness, as taxpayers may have to fund the unpaid loans of some borrowers while others repay their loans in full. This is definitely something that the UK government should reconsider, this is not an easy fix.
What is the Government doing to Tackle this Issue?
The UK government's recent announcement of measures to increase the number of students paying back their student loans has raised some important questions about the impact of these changes.
One of the measures is freezing maximum tuition fees until the 2024-25 academic year, therefore hitting the universities and decreasing the debt a student will take on.
Another measure is reducing interest rates for new borrowers due to the increasing inflation, but again, this change is expected to have a limited impact in the medium term as the "prevailing market rate cap" is still in place for many borrowers. This seems to be a case of too little, too late, leaving many students still facing a daunting level of debt.
The government's plan to lower repayment thresholds may also seem like a good idea on the surface, but it means that new borrowers will be required to start paying back their loans at an earlier stage and at a lower income level. This can create a significant financial burden for young graduates, just as they're trying to start their careers. Do you think this is a good idea? Graduates are struggling to find jobs and make ends meet let alone start worrying to repay their student loans.
And let's not forget about the government's proposal to extend repayment terms to 40 years for new borrowers. While it doesn't have an immediate impact on cash flow, it does mean that affected borrowers will now be paying a higher rate of income tax for their entire working lives. This is a heavy price to pay for the privilege of receiving a higher education.
Overall, the UK government's measures to increase the number of student loan repayments may have short-term benefits, but they also raise valid concerns about the long-term impact on students, graduates and their families. Is this the right approach, or are there better ways to ensure that students can afford higher education while still protecting taxpayers? This is a question worth considering.
Do you think the government is going the right way to tackle the lack of repayment? Is there other ways?
SOURCES:
https://commonslibrary.parliament.uk/research-briefings/sn01079/#:~:text=Scale%20of%20student%20loans%20in,)%20by%20the%20mid%2D2040s.
https://obr.uk/box/the-fiscal-impact-of-student-loans-reforms/
https://sovereignboss.co.uk/student-loan-statistics/#11%-Repay-Rate
Great post! As a college student in the United States, the increasing cost of tuition worries me 🥲