SerpApi.Org
I attended university during the peak of lockdown. I was part of the generation that took out the average maintenance loan of about £7,000 and was told to stay in a single-bed, box-sized room and interact only with a household of 12 people randomly assigned to you.
I couldn’t think of anything worse, so even though I wanted to start my new life, reinvent myself, dye my hair blue, etc. I decided to stay at home.
It was the best decision I made, which I’ve only come to realise now: I saved about seven grand on accommodation fees for the year.
It was the richest I had ever felt. Naturally, I wanted to spend it, but I invested it instead. And, no, I haven’t put the profit into paying off my student loan.
The real issue lies within the mechanism of the entire loan, not just the maintenance allotment. The full student loan is not a standard loan. It acts as a phantom debt that hangs over people, scaring them into a frenzy.
The interest outpaces repayments across the system as a whole. The interest added to student loans last year was more than double the value of everything graduates paid back. It does not touch your credit rating, and it is wiped out entirely 30 years after graduation (40 years for those who started after 2023), no matter how big or, more likely, how small a dent you have made in it.
The Government’s own forecasts suggest that only about a third of my cohort will ever repay the loan in full.
Voluntary overpayment on the loan essentially takes the form of a donation to the Treasury, for a balance that was destined to be written off anyway. It makes more sense to accept it for what it is: the cheapest money you’ll ever be offered, on terms no bank would ever give you. It is a rational choice.
In the 1990s, the first generation of the higher education student funding model was a mortgage-style loan. It performed so badly that the Government sold the final £890m of the book for £160m The equivalent of 18p per £1. Learning almost nothing from this, except that it was possible to just move the losses off the books, we rolled out more loans in a similar fashion. At least in the 1990s the job market was less dire for graduates.
Now, let’s look at Covid. The Bounce Back Loans Scheme pushed £46.5bn out the door with barely a credit check, and the Government’s own repayment data are confession enough. Barely 16 per cent of Bounce Back loans have been repaid in full. A quarter have already been settled by taxpayers under the state guarantee.
Across the Covid loan schemes, the government has paid banks £11.9bn to cover lending losses. Of that, £1.94bn in loans has been flagged as suspected fraud, with £1.56bn of the compensation paid to lenders relating to those cases. This was another government-backed loan scheme that was silently written off, with many business owners viewing it as a grant with extra steps.
You would think that a state which had watched its lending fail twice would change the mechanism the third time. Instead it scaled it up. The student loan book stands at £295bn, is forecast to reach £500bn by the late 2040s and to pass £1tn in cash terms by the 2060s. And when ministers finally did “reform” the system in 2022, look at what they corrected: not the mechanism, but the Treasury’s exposure to it.
The repayment period was extended to 40 years and the income threshold for repayments was reduced. The latest Budget quietly froze that threshold for three years – meaning more borrowers are likely to begin repaying sooner. Fiscal drag is doing the work that the chancellor felt too politically divisive to announce.
Every correction has made the product behave less like a loan and more like a tax, while keeping the label that spares the Government accountability.
And, to what end? Going back to the maintenance loan, despite its name, it fails to provide adequate funding. It now covers barely half of what students need to live on; even those with the maximum support have to rely on the bank of mum and dad or work more than 20 hours a week at a minimum-wage job to reach a basic standard of living.
So students, take out a loan too small to live on, but too big to ever pay off after added interest. To be collected by a mechanism designed not to collect.
