The Outrage of UK Student Loans
My friend and I have decided that we may need to chain ourselves to the gates of Downing Street in an attempt to call attention to the outrage we feel for the escalating debt our children have on their student loans.
A typical three year course can cost them £60,000 + and so when we were discussing the situation together the other day – we realised that my 3 children owe over £200,000 collectively (my daughter also did an MA) and her four children owe approximately £240,000 and the horrendous thing is that their debt is growing rather than shrinking.
But before we take such radical action (in case no one joins us), we’d really appreciate any thoughts, stories and comments from experts out there, other parents and indeed students as to what you think about the current state of affairs and what to do about it?
The structure of student loans in the UK, combined with the effects of compound interest, has sparked widespread criticism and calls for reform. We don’t fully understand the situation, but we do believe that the financial burden of student loans – specifically the compounding interest rates attached to them – appears to have turned what should be an investment in the future into a source of long term financial strain. We have got to start dealing with this debt crisis that has been foisted on our young people. It is simply not acceptable.
The Labour Government, who believe that everybody has a chance to go to university no matter what their background had previously pledged to scrap university tuition fees if they won power, but given that’s going to cost around £100 billion, which clearly is currently unaffordable, they’ve gone rather quiet on the matter. Even Lord Adonis who came up with the student fees policy (as Tony Blair’s Policy Director) has called for them to be scrapped. He said he never meant to create a “Frankenstein’s Monster of £50K + debts for graduates on modest salaries” and he blames the “greedy” Vice Chancellor’s who successfully lobbied the coalition government to increase the £3K a year cap to £9K a year.
What does this mean for our children?
Not only is it very likely they will never manage to pay off the debt, as they all owe way more than they originally borrowed – it used to be written off after 30 years, but that changed in 2023 to 40 years – which means that they will still be paying it back into their 60’s (unless they die or are permanently incapacitated). At the same time the income threshold at which repayments begin was also lowered from more than £27,000 to £25,000. Martin Lewis says “this saw the biggest shift in student finance for a decade” and that “it will increase the cost by over 50% for many typical graduates and double it for a few.” He does however argue that it should be seen as a “no win, no fee” education and that we shouldn’t overly worry about the debt as essentially they repay 9% of everything earned above the current threshold of £25K so “technically you can ignore what you owe as it’s effectively like paying an extra 9% tax on your income for most of your working life”, but we don’t see it like that.
Admittedly the outstanding debt does not affect their credit rating, but it will affect their ability to get a mortgage (as they take the 9% salary reduction into account when deciding how much to lend – even if it’s assessed more like you have a higher tax burden than outstanding debt) and we believe it will also affect what they can save into pensions. Because the pay is automatically taken via PAYE before you get your income, when two graduates have children together, they could potentially be spending more money attempting to repay their student debt than supporting their own family, which is ridiculous. You also still need to pay if you move abroad as it’s technically a contract.
It’s very hard to find any data regarding how this situation is affecting our young people on a psychological level, but it must be extremely daunting to embark on a career with such a lot of debt hanging over them and then to find that most will have a debt that grows year on year that they will never pay back.
And the worst thing?
Were you aware that the interest is compound? Meaning that interest is calculated daily and added to the loan balance, so borrowers are essentially charged interest on their interest. This compounding mechanism causes loan balances to balloon, especially for those whose repayments barely cover the interest and so most students will have debt that grows year on year that they will never pay off. This can be especially frustrating for lower-earning individuals, whose repayments do little to reduce the principal amount and results in a lifetime of debt. It can also have a disproportionate impact on middle earners – while low earners may avoid substantial repayments long term and high earners can pay off their loans over time, middle earners are often the hardest hit. They pay enough to cover some of the interest but not enough to significantly reduce the original loan, effectively trapping them in debt. Therefore, the only students to have gained, are the top earners (approximately 25%), who cleared their loans under the old system.
The psychological burden of seeing a perpetually growing balance can be significant. “There’s not even any point in overpayments, because it will be largely swallowed up by interest, so better to make the minimum payments” says Martin Lewis.
Some graduates have been lucky enough to have their student debts payed off by their parents, but that must only be a tiny percentage and surely it causes a massive imbalance when the pursuit of higher education is meant to be a pathway to greater career opportunities and personal growth for all.
Back in the day, when it started, the interest wasn’t huge as it’s set at the Retail Price Index of inflation + 3%. But now, due to the sharp rise in interest rates the cap for most student loans sits at 7.6%, it’s highest level ever.
7.6% is outrageous!
Who is benefitting from this money?
Could somebody please explain who is benefitting from this increase in funds and where the money is going? We’ve read that since 2017 it has been designed to appeal to private investors looking for income, which was when, (instead of a debt collector dealing with the money), it was sold to hedge funds and pension funds.
It would be more palatable if (like National Lottery grants) the money was being ploughed back into the universities to benefit our future students, but given that a number of universities are currently reducing their courses and amenities, this doesn’t seem to be the case.
What needs to happen?
We clearly need to have an urgent national conversation on tuition fees.
Our current thoughts on the options are:-
1. Get rid of the student loans altogether.
2. Student loan interest should be scrapped completely – cut to zero and the loan frozen in the cash term.
Or at the very least:-
3. The compound interest needs to be eliminated – by adopting a simple interest model which could prevent debt from spiralling out of control and ensuring that repayments actually reduce the loan balance.
Australia has started offering interest free loans and in 2023 the Canadian Government permanently eliminated the accumulation of interest on student loans.
4. Means tested grants should be reintroduced – especially for disadvantaged students to make sure that living costs are not a barrier to studying at university. At the moment the living costs loaned are dependent on “family residential income” (parental income), so you get less if your parents earn more – some get half of what others get and it’s not clear (or fair) to the students or their parents that they are meant to top up the rest.
5. A proper Graduate Repayment Scheme needs to be introduced to be separate from the national accounts. At the moment interest accrued on loans is counted as income, which reduces the government’s accounting deficit.
The Institute for Fiscal Studies (IFS) has calculated that as a result of the changes made by the last government to the interest rates that £90,000 of interest is added to the average student’s debt over its lifetime and will result in the Treasury gaining an estimated additional £600m in loan repayments from each cohort of students, substantially reducing the amount of unpaid loans that would expire after 40 years.
We simply cannot allow this situation to continue – it will deter young people from going on to further education and can cause great anxiety. It’s more like a graduate tax for the privilege of attending university, rather than a loan that can be paid off in a reasonable amount of time at a realistic rate.
The compounding interest on UK student loans is not just a financial issue—it’s a social and ethical one. It penalises those who strive for higher education and burdens them with a lifetime of debt that grows disproportionately to their earnings.
Reforming the system is not only necessary but urgent, as the current structure undermines the principle of education as a tool for opportunity and equality. It’s time for policymakers to prioritise fairness and sustainability in student loan practices, ensuring that future generations are not trapped by the weight of compounding debt.
We’d love to hear your thoughts please so that we can formulate a plan?
Photo credit to Adam Tinworth on Flickr taken in 1989
Jo
February 4, 2025Best article ever – all incredibly well said ! I will be chaining myself with you! Jo xx
Family Affairs
February 4, 2025Thank you Jo, glad you will be joining us on those gates! x
Juliet
February 4, 2025So pleased you’re highlighting this important issue, which seems to have been ignored or conveniently overlooked by universities and the government alike, but which is, in fact, a ticking time bomb and putting students in an untenable position. The fact that they are being charged compound interest on top seems entirely unethical and unfair.
Students need to be made more aware of the ramifications of taking on these loans so they can advocate more strongly for themselves and not go into agreeing to them blindly.
Family Affairs
February 4, 2025Thanks so much Julie and yes, agree students should be more aware before going in blindly x
Imogen
February 9, 2025I feel passionately that this is a travesty. This socialist government must address this issue. Our young people should not start off their working life with such a hefty debt on their shoulders. Thank you for highlighting this and let us know what we can do to escalate this artifice.
Family Affairs
February 11, 2025Thank you for your comment and for your support! Will be in touch Lx
SQ
July 23, 2025Thanks for this article, it made me feel heard. I stumbled across it after typing ‘F**k UK student loans’ into Google to find others with a similar sentiment. After a very frustrating yearly review of my 64,000+ GBP student loan from a 3-year course at a red brick uni because you ‘can’t get a good job without a tertiary education’, – feeling pretty hard done by. As a middle earner, more interest is being applied each year than the repayment amount, so the loan just gets bigger. It’s just a pointless black hole. Being in Australia, also feels like an extra sting as I physically have to transfer the money into a UK bank account every quarter – so I’m paying international transfer fees too.
Family Affairs
July 24, 2025Hi SQ, thanks for your comments – we all feel your pain! Working hard to try and get this sorted! Lx
k
August 11, 2025Absolutely criminal. You will pay everything and more back. The daily interest rate on a £30k loan is £3.53 or £1290 each year- that is just the interest. How can a £30k loan cost you £68k in 40 years? I thought Wonga style loans were outlawed.
There is little to no explanation available for people to make an informed choice. If people really understood the ini’s would be empty
Family Affairs
August 15, 2025Agree x
shai
October 7, 2025I don’t understand why the interest changes the more you earn. Over £51k and its RPI + 3%. How is this even legal. It’s a debt trap.
Family Affairs
November 28, 2025I completely agree! Lx
N Crawford
January 18, 2026Thank you for explaining and highlighting this issue. I have two daughters whom this affects directly. It is definitely a huge concern and is impacting their mental health adversely. Graduate jobs seem to be diminishing too and competition for jobs is so fierce….
Our young people are facing too many handicaps to get into life successfully.
Family Affairs
January 21, 2026Thanks for commenting – we are trying to get this discussed in parliament! Needs urgent action!