More than 150,000 UK graduates are already repaying student loan debts of more than £100,000. This amount has jumped by a third in only six months. This increase reflects an unmistakable trend of schools putting students at increasing financial risk as they transition into their lives after education. The sharp increase is due in large part to the expiring of student loan adjustments. In particular, Plan 2 and Plan 5 feature some unusual repayment terms that vary based on the month in which the borrower’s course starts and their income.
Plan 2 loans apply to students who started their studies prior to 1 August 2023. These loans are usually forgiven after 30 years regardless of borrower repayment status. Plan 5 loans were introduced for new students who commenced their degrees after this date and come with an extended repayment term of 40 years. Plan 5 borrowers need to begin repaying their loans immediately upon earning above £25,000 a year. A year ago, the effective interest rate was 3.2%.
For students who made it through their courses last year, the debt level upon graduation is £53,000 on average. Even more shockingly, more than 2.6 million people are in debt for student loans of £50,000 or higher. The most egregious example has a student borrower who now owes an unbelievable £298,000. The ever-increasing population of borrowers carrying six-figure loans is indicative of a larger trend in the higher-educational financing environment.
As of this January, data showed that 113,029 had student loan debts exceeding £100,000. This rapidly increasing number has spawned worry about the impact of such growth on graduates’ financial future. Sarah Pennells, a consumer finance specialist at Royal London, accentuated how burdensome debt can negatively affect young adults’ lives.
“Six-figure student loan balances aren’t just numbers on a screen – they are delaying dreams, derailing savings plans and making it harder for young people to feel financially secure.” – Sarah Pennells, Royal London’s consumer finance expert
Widening debts signal not only the rising costs of higher education, but the profound effects of government policies on student outcomes. These policies can at times saddle borrowers with extraordinary balances. A spokesperson from the SLC said that certain courses are exempt from restrictions on repeating study. People can get more money if they make strong personal cases for it.
“In many cases, exceptional balances are a function of government policy that in certain circumstances exempts specific courses from repeat study restrictions, permits funding for additional years of study and results in SLC awarding additional years of funding when an individual demonstrates compelling personal reasons.” – SLC spokesperson
The Department for Education has acknowledged the importance of ensuring that students receive value for their financial investment in higher education. A spokesperson stated that it is vital for universities to provide quality teaching and experiences that enable students to pursue rewarding careers.
“It is vital that students can be confident the significant investment they make in higher education delivers real value for money, and that universities provide teaching and experience they deserve to help students pursue a rewarding career.” – Department for Education spokesperson
As student debt continues to reach record levels, we are finding that it’s changing young people’s financial habits and decisions. This is an alarming trend that needs to be addressed right away. The dramatic increase in six-figure debts indicates an urgent need for policymakers to address the student loan system and its long-term viability for future generations.