Three-quarters of graduates will never pay off their student debt

Gladys Abbott
July 6, 2017

The majority of students will still be paying off their student loans when they are in their 50's, whilst three-quarters of graduates will never completely clear the debt, a new study has found.

"Under the Tories, student debt continues to rise with no end in sight, and students in the United Kingdom will now graduate with a shocking average of over £50,000 in debt".

The report also says that the main beneficiaries of reducing fees "would be high-earning graduates, as they are the ones making the highest repayments under the current system".

According to the Institute for Fiscal Studies (IFS), the gains made by poorer students after the controversial 2012 reforms have now been wiped out by later changes.

Now fees are more than £9,000 a year, but in return graduates only repay over a higher wage threshold of £21,000.

Chris Belfield, who worked on the report, said: "Interest rates on student loans reached up to 6.1% in March 2017 and are very high compared with current market rates".

This means the average student who borrows £45,000 ends up paying another £5,800 in interest.

However, the figure rises to £6,500 for the poorest students due to the axing of maintenance grants, which were replaced with additional loans previous year.

"To add to this, it's important that students remember that the interest on their loan is a complex issue that is affected by many factors".

Student finances
University funding has increased by about 25% per student since 2011

The Debrief: British students face the highest student debt in the developing world, at an average of £50,800. Ah. Graduates from English universities have the "highest student debts in the developed world", the report says. With interest rates on student loans set to be raised to 6.1% from 4.6% in September, the IFS says students will have racked up approximately £5,800 in interest charges, by the time they graduate.

However, changes since 2012 have increased the repayments of nearly all graduates, increasing the burden of student loans for low and middle earners - driven largely by the freezing of the £21,000 repayment threshold until at least April 2021.

So should you pay off your student loan in one large payment if you can?

Universities minister Jo Johnson said: "The government consciously subsidises the studies of those who for a variety of reasons, including family responsibilities, may not repay their loans in full".

The IFS notes that the poorest students now have slightly more "cash in pocket" with maintenance funding switched to loans.

Replacing maintenance grants with loans in 2015 meant that poorer students were now borrowing more than their more affluent counterparts to see them through a three-year degree course.

The freeze and the loss of grants have contributed to a 30 per cent increase since 2012 in the repayments that the lowest-earning third of graduates can expect to make.

It also said there is a risk that better-off parents will pay fees up front, especially if they think their offspring will be high earners.

Sarah Stevens, head of policy at the Russell Group, said a "sustainable" funding system is needed to ensure students" expectations of a "world-class learning experience can continue to be met, and exceeded'.

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