Undergraduate student loans and the cost of university

As a Year 12 student who will soon be writing his personal statement for university, I often find myself contemplating the joys of student finance.

My main concern is regarding student loans – how they work, how much I get, and how strenuous this debt will be once I’ve graduated.

While we are told not to worry, that the student loans and debts that come with it will be paid off, I am constantly bombarded by news reports on the reality of how graduates are battling against this ongoing financial current.

Student loans are a government subsidised form of financial aid that help post-secondary students pay for the costs of university.

These loans come in two forms.

The first is the tuition fee, which is used to pay the maximum cost of £9,790 for tuition. This is paid by the government directly to the university.

The consistent interest does not align with the time it takes to earn above £25,000

Students can only get the maximum amount of £9,790, but with maintenance loans they can receive varying amounts.

For instance, if a student is living away from home and attending a London university, they are eligible to receive a loan of up to £13,096.

However, if the student is attending a university outside of the capital, they are only eligible for a loan of up to £10,242 for the 2026-2027 academic year.

The key issue with student loans is the interest on them.

Not only does it make it more difficult to pay off, but the consistent interest does not align with the time it takes to earn above £25,000.

The repayments are currently 9% of income above the £25,000 annual threshold, so someone earning £26,000 would pay £90

On the contrary, students don’t pay according to how much they owe, but how much they earn, which means it increasingly takes more time.

To give a bit more context on how the repayments works, essentially the student starts paying back from the April after their studies have finished.

The repayments are currently 9% of income above the £25,000 annual threshold, so someone earning £26,000 would pay £90.

This percentage remains the same regardless of an increase in income, and this will happen repeatedly until 40 years have passed and the debt is wiped off.

While it sounds reasonable, the interest rate is increasing at a rate students can’t keep up with.

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The ever-growing interest rate is calculated using the retail price index (RPI) for students on Plan 5.

Undergraduate students starting university after August 1 2023 pay the set interest rate based on the rate of inflation, which raises the question: is use of interest fair?

There are a vast number of issues and downsides to student loans – not only the obvious mental-health issues with stress and anxiety, but also the long-term constraint on a student’s life when it comes to maximising necessary disposable income.

The increasing interest rate will impact a student’s savings as a Plan 5 loan increases in line with inflation.

Graduates earning higher salaries will be hit with higher repayments, meaning they will be spending more money

This will trigger a massive surge in the overall loan size if inflation rises above 2%, while simultaneously jeopardising career progression as 9% is deducted on top of income tax and national insurance.

It also acts as a disincentive for progression through promotions or pay rises as lower earners will benefit by paying less than what they owe once the 40-year expiry occurs.

However, graduates earning higher salaries will be hit with higher repayments, meaning they will be spending more money over the 40-year time period.

Naturally, this incentivises students who are looking to attend university to get a part-time job while they are studying in an attempt to cover the cost of living, as the maintenance loan may not be a significant amount.

They may also be ineligible for a larger amount.

While student loans may be a gateway to higher education, the core issue with student finance is the interest

Students like me may investigate the already saturated market of degree apprenticeships. However, due to the limited spaces, many students will end up proceeding with their chosen university course.

While student loans may be a gateway to higher education, the core issue with student finance is the interest that increases every year.

This acts as a lifetime tax that anchors students in debt, with inflation penalising those who are driven to progress in their career.

Zakariya Su-Miah is a Year 12 work experience student