April 4, 2017    3 minute read

Why Progressive Interest Rates on UK Student Loans Don’t Work

Overpaying?    April 4, 2017    3 minute read

Why Progressive Interest Rates on UK Student Loans Don’t Work

2012 school leavers, who read the terms and conditions of their loan agreements, will have known that alongside paying higher tuition fees of £9,000 they would also be charged RPI (the government’s preferred inflation metric) + 3% on their loans, which in 2012/2013 amounted to 6.6%. A double whammy, one might say.

The Total Cost

Consequently, taking out tuition and maintenance loans will have caused the 2012 leavers to accrue total debts of around £50,000 over a four-year course. The interest they are charged following graduation is progressively linked to pay: graduates with higher salaries pay the full RPI + 3%, while those with lower paychecks are offered a lower rate during their working years.

The rationale, so the government says, is that a higher-earning graduate is charged a superior rate so that he or she may cover the inability of lower-paid graduates to repay their loans; the Institute for Fiscal Studies estimates that around 70% of students who left university in 2015 – and thus were the first to pay high fees and rates – will not pay back their loans.

Ostensibly, the purpose of the government offering loans to students is to invest in them. Highly-educated individuals acquire highly-paid occupations and thus pay greater tax credits. Each year, however, one-third of fresh graduates enter jobs for which they do not need a degree, 40% are still unemployed six months after graduation, and around half of all graduates, irrespective of age, are in jobs that do not require degrees.

The New Job Market

Evidently, the Blairite policy of opening up university education to all strata of the academic spectrum rather than keeping it the preserve of an elite few has failed entirely to create a slurry of high-paid jobs. This contrivance led to polytechnics branding themselves universities and proceeding to charge the same fees as the country’s world-renowned institutions in exchange for degrees that are scarcely recognised by reputable employers. Not only does this perpetuate the farce that all degrees are equal, it has contributed towards the UK-wide dearth of vocational traineeships and the concurrent erosion in how society values such qualifications.

Graduates who have used their loans to obtain requisite degrees for their professional careers now pay larger monthly sums alongside higher taxes, while also paying increased interest rates to cover the bad loans given out. Consequently, a graduate on the government’s Civil Service Fast Stream, for instance, is unable to service his or her student debt and will instead see their principal grow by £8,000 over their first four years in employment.


The replacement of the universal obligation to pay back what you have borrowed with essentially compelling those who have used student loans properly to subsidise a majority who are now not expected to pay back the very same loans makes the present system seem devoid of moral and financial sense.

Rather than enabling everyone to go to university for the sake of doing so – and charging fundamentally unfair loan rates in the process – proper attention should instead be paid to creating and promoting qualifications that will genuinely leverage the talent of the UK’s youth.

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