UK Student Loans are an economic and social disaster happening in front of our very eyes. Teenagers are heading to university, to study subjects and gain qualifications that are of little or no use to our society or economym but worst of all, they will end up with a debt that will blight their lives for at least 30 years, if parents do not intervene.

We can, and I will, talk about the value of sending kids to university in another post. I want to highlight student loans because this is a very serious issue that most parents are not taking on board, and I was guilty of that too.

I’ve got four kids. The older two didn’t go to university and have done really well. The younger two have gone to university, and I was very happy with the opportunity it seemed to offer. They qualified for the basic loans and signed up for them. We agreed to fund the remainder of the cost, subject to them working during the summer to save money to support themselves as well.

It all seemed to have worked. The older one left university, found a good job, and started paying back her loan. She has a good salary, and the repayments started at £300 a month. That is not a trivial amount.

Then the alarm bells started ringing after the Chancellor froze the repayment threshold in the Budget. I couldn’t understand why the Chancellor was getting involved. It was as if this was a tax on her job. Headlines about the misleading of students and excessive interest payments caused me to do a bit more investigation.

The Student Loan assumptions

The basic idea of the loan is that students borrow money for their education. The assumption is that they will earn more than non-graduates and, as such, will be in a position to repay their loans from their higher incomes.

This assumption is totally flawed because:

1. 50% of school leavers are now going to university, so they can’t all earn more than average.
2. There is a massive oversupply of graduates, as universities are happy to sell degrees in anything you fancy. It has nothing to do with the economic needs of the country.
3. Changes in government policy around employers’ National Insurance contributions and minimum wages for young people have led to a collapse in vacancies.
4. Most graduates are taking jobs, if they can find one, that are on relatively low incomes. In fact, some are happily staying on lower salaries to avoid paying the loan back.

They are not earning enough to start repaying their loans, so who is funding them?

My suspicion is that the interest rate is high because the graduates who have found good jobs are funding the unpaid loans of graduates in low-paid jobs.

What shocked my about Student Loans

The loans themselves are immoral. Teenagers have been mis-sold these loans. They were told they would be paying the equivalent of a cup of coffee per week, when in fact they are paying interest at a rate similar to what a bank loan would have cost.

This is what I learned from researching my daughter’s loan:

1. The Student Loans Company stated that her interest rate was 3.5% and encouraged us to follow a link illustrating the current Retail Price Index. She had to add these together to find the actual interest rate, which was 7.5%.
2. The loan starts accumulating interest from the day you receive it, so by the time she started work, the loan had already grown.
3. The student loan is not classified as a debt for credit purposes, but it does impact her disposable income, which in turn affects how much she can borrow.
4. The structure of the loan is unlike a mortgage, where you have the capital and the interest separated. In a mortgage, any overpayments come off the capital. With the student loan, it is just one figure, and it continually grows because interest is continually being added.

In simple terms, the amount she was paying each month reduced her potential mortgage borrowing by £100,000. Young people with student loans can therefore borrow less than non-graduates and will find it harder to buy a home.

I was specifically looking at Plan 2 loans, but the principles apply to all of them. These are appalling debts. I concluded that they were millstones around graduates’ necks that would never be removed.

Social and economic impact of Student Loans

These loans were sold on the basis that they would increase opportunity and social mobility. In my view, they are achieving exactly the opposite.

This is a summary of the impact:

1. Students with good jobs are paying excessive amounts of interest to fund the unpaid loans of other students. I calculated that my daughter would repay over £120,000 to clear her £45,000 loan, meaning she would remain in debt for 30 years.
2. The way the loan is structured makes it nearly impossible to repay. It is a millstone around their necks, continuing to accumulate interest for 30 or 40 years, depending on the plan, before eventually being written off.
3. When graduates come to buy a house, they are disadvantaged compared with people who skipped university and went straight into employment.
4. Students from disadvantaged backgrounds often have even larger loans, increasing their debt and disadvantaging them even more over their lifetimes. This is therefore reducing, not increasing, social mobility.
5. The real sting in the tail for the economy is that 50% of this generation will have their mortgage potential reduced. This must have an impact on house prices, which in turn affects the wider economy.

These loans are a total economic and social disaster.

How I resolved the problem.

Horrified by what I had discovered, I came up with three options for my daughter and ourselves, as this was going to impact our future too. The Bank of Mum and Dad would almost certainly be receiving regular visits in the future, whatever we did.

1. Do nothing — accept that you have been shafted, recognise that most people have the same problem, and accept that young people will have to cope.
2. Make overpayments — this sounded like a good idea, but we realised it was the worst option because, given the way interest is added, you may not gain very much and could simply end up paying the Government more.
3. Pay it off — find a way of paying the loan off using savings or by extending the mortgage, thereby removing the loan from the Government’s student loan system and bringing it under your own control.

When I had reviewed the options, it was really only a choice between “Pay it off” and “Do nothing”. Many of the negative stories I found were linked to people trying the overpayments approach.

My advice is that if there is anything you can do to pay the loan off, you should do it, and the sooner the better. That loan is growing every day, so the cost is continually increasing.

We chose Option 3, dipped into our pension, and paid off the student loan. Our daughter will pay us back over time if we need the money, or we may simply view it as an early payment of part of her inheritance.

My daughter started her degree in 2021, and by the start of 2026 the settlement figure on her £45,000 loan was just short of £50,000.

These loans are having a massive negative effect on the career aspirations and life potential of graduates, and history will look back on this as an absolute disgrace. I have no doubt about that.