Students graduate with an average debt of £50,000

A new study has predicted UK students will graduate with an average debt of £50,800 due to the recent fee and interest increases. But does it matter?
The IFS predicts that almost three quarters of graduates will not pay off their whole student loan, even though many will reach their fifties and still be paying it back.

This pretty much matches up to our own predictions that were made using the student loan calculator on our site.

The study states that students from poorer backgrounds will borrow more, leaving their studies over £57,000 in debt. The government’s scrapping of maintenance grants in favour of bigger loans will have contributed to this.

Author of the IFS report, Chris Belfield, has described the interest rate (which is set to rise to "up to" 6.1% this year) as "very high", although universities minister, Jo Johnson has highlighted that more disadvantaged students are entering into higher education than ever before.

What's more, interest is charged as soon as courses start, meaning students will build up an average of £5,800 in interest over their degrees.

Should graduates worry?

The IFS compared the current student finance system, introduced in 2012, with the previous system when fees were only £3,000 a year. After 2012, the minimum salary at which graduates had to start paying 9% of their loans back increased to £21,000 (from around £17,000 under the previous loan system), meaning graduates actually pay off less per month now than those that started uni before 2012.

Unfortunately, the repayment threshold has been frozen at £21,000 for 2012+ starters whereas the threshold continues to rise for those under the previous system.

However, graduates under the new system still pay back less a month than those under the old one. But, it's important to remember that the cut off period for 2012+ starters is now 30 years after graduating (25 under the old system).

With degree fees rising to £9,250 a year, the report predicts graduates will rack up around £40,000 in interest on top of their loans over the 30-year repayment period.

Here at Save the Student we feel that prospective students and graduates should be aware of the facts. The truth is that despite the huge student debt numbers as well as the alarming interest the majority of graduates will never pay off their full loan before it's wiped.

Our very own student finance expert, Jake Butler, says:

Students should be careful when reading reports like this. It's important to remember that unless you're a very high earning graduate and start with a salary of around £32,000+ when graduating, the huge loans and interest will not really affect you.

No matter the size of your debt when you graduate or the interest on it, you will always pay just 9% of what you earn above £21,000 a year. If you reach 30 years after graduating without paying off all of the debt, the rest is simply wiped.

Even IF the interest on your loan turns out to be £40,000 the likelihood is that you'll never pay it anyway...

So, who benefits?

The IFS said both universities and the government benefit from this current student fee system. The excessive salaries of university vice-chancellors, with some earning £400,00 a year is telling of this. By getting rid of grants and freezing the loan repayment threshold, the government will save £3bn in the long run.

The cost of higher education was a central issue in this year’s General Election. With Labour’s promise to scrap tuition fees, the party won many more university seats. It seems that money was definitely on the minds of students.

The IFS pointed out that getting rid of tuition fees completely would cost the UK £11bn a year. However, continuing with the current system of “high debts, high interest rates and low repayment rates” will cause issues for both “graduates and the public finances”.

Labour’s shadow education minister, Gordon Marsden, believes: “this report shows that any argument that the current fee system is progressive is absolute nonsense…this government has increased the debt burden of students from disadvantaged backgrounds, who will graduate with debts in excess of £57,000.”

However, Jo Johnson, universities minister, highlighted that the government consciously subsidises those who may not repay their loans in full for a number of reasons.

He said: "This is a vital and deliberate investment in the skills base of this country, not a symptom of a broken student finance system…the evidence bears this out: young people from poorer backgrounds are now going to university at a record rate - up 43% since 2009."

The government are clearly divided on the issue of student debt. While more people from disadvantaged backgrounds are attending university, they remain the worst off in terms of debt afterwards. The very high interest rate is simply meaning that more and more graduates are never paying their whole loan back.

If you’re interested in how much money you will owe after graduating, head over to our student loans calculator. Just remember not to let the figure worry you, you will only be paying back 9% on the amount you earn above the repayment threshold.  If you’re still concerned, check out our full student finance guide and our guide to student debt.