Three-quarters of UK graduates will never clear student debt

Three-quarters of UK university graduates might never clear their student loans, according to a new report by the Institute of Fiscal Studies.

Most graduates will continue to be paying off student loan debt well into their 50s, the report revealed.

The IFS report said that a combination of “high fees and large maintenance loans” has contributed to English graduates “having the highest student debts in the developed world.”

King's College London graduands.JPG
Photo by FormerBBCTwo (Own work) via Wikimedia Commons

Chris Belfield, co-author of 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.

“Combined with high levels of debt, this increases average debt on graduation by £5,800. There is no impact on the repayments of the lowest earners, but the highest earners can expect to repay up to £40,000 in interest payments.”

Government reforms in 2012 raised the upper threshold for university fees to £9,000 per year and maintenance grants were replaced with loans – meaning debt rates increased quickly.

There are now university graduated from low-income families with student debt levels of over £57,000.

Interest rates on student debt are also “very high”, at 3 percentage points above the retail prices index (equal to 6.1% in March 2017).

The average student borrows £45,000 but ends up with a debt of £50,800 because of £5,800 accrued in interest. Higher earners could end up paying £40,000 in interest payments, the IFS said.

The report said: “There is a risk that better-off parents will pay fees up front, especially if they think their offspring will be high earners.

“This would increase the cost to the government in the long run.”

Jack Britton, an author of the report, said:

“Recent policy changes have increased university funding and reduced long-term government spending on HE [Higher Education] while substantially increasing payments by graduates, especially high-earning graduates.

“There is probably not much further to go down this route, but proposals for reducing student fees tend to hit the public finances while benefiting high earners the most.”