AS MY student loan landed in my bank account I remember being filled with excitement as I thought about spending it on drinks, meals and new clothes during freshers’ week.
Repaying it would cost the same as a £30 a month phone contract and I wouldn’t need to make payments for years – or so I thought.
Ten years later I’m paying £129 a month without any hope of repaying my loan back in full.
I now owe an eye-watering £52,427, almost £14,000 more than the £38,518 loan I took out in October 2016.
I’ve done everything right – I got a job straight out of university and started to repay my loan as soon as my salary increased above the repayment threshold.
But despite diligently paying back my loan, I’m set to repay around £65,000 in total, assuming my salary increases in line with inflation until April 2050, when my loan expires.
Read more on money
LOAN WOES
Thousands to have debt reduced after graduates overcharged by student loan error
LOAN WOES
Student loan interest rates finally capped – but still at whopping 6%
That’s £26,482 more than I took out. So what’s going on?
The student finance scandal
A student finance scandal has been building.
I’m one of five million graduates on a Plan 2 agreement, who are furious about the unfair terms of their loan.
A Plan 2 agreement was given out to undergraduates who started their course between September 1, 2012 and July 31, 2023.
Most read in Money
CLEAR VIEW
Victory for mum as 6ft concrete wall that blocks her sea view to be demolished
NOT LOVIN’ IT
McDonald’s confirms it won’t bring back Monopoly game this autumn after 20yrs
ROYAL BARGAIN
Remote castle with three towers hits market for less than average London home
TIMOTHY FAILURE
British brewery Timothy Taylor enrages drinkers with Gen Z rebrand of logo
Once their salary hits £29,385, 9% of their salary is taken off, which goes towards paying off their loan.
But the issue is that students on this plan are seeing their debt balloon to astronomic levels.
The first problem is to do with the repayment threshold, which will remain frozen at £29,385 between 2027 and 2030.
This means the threshold won’t rise with inflation, so students will start to repay their loans sooner than before, while salary increases mean they’ll repay more.
As a result of the frozen thresholds, it is expected that someone who started university in 2022/23 will be paying back an extra £3,000-£5,000 back over their lifetime as a result of the deep freeze, according to the Institute for Fiscal Studies.
Another big problem Plan 2 students like me face is the punishing interest rate slapped on their loans.
The interest rate for Plan 2 and 3 loans is higher than other plans because the interest rate is calculated using RPI plus 3%.
RPI is a measure of inflation in the UK that tracks the average change in prices for a basket of goods and services.
RPI has been high in the past couple of years and peaked at 14.2% in late 2022.
In the last year alone I paid a variable interest rate of between 5.95% and 7.05% on my loan.
Meanwhile, in August 2024 my interest rate soared to 8%.
I had no idea about how my student debt would snowball out of control when I first took it out in 2016.
I remember being told in school that repayments would be equivalent to the cost of a phone contract or cinema ticket.
I thought it would work like a tax, so I didn’t worry about how big my debt would become.
How grads like me were ‘mis-sold’
In a report published in July the Treasury Committee said the comparisons amounted to mis-selling as students were not told clearly enough what they were signing up for.
Meanwhile, last month more than 120 MPs and peers wrote a letter to the Chancellor to ask for an “urgent review” of the student loans system.
In it they said “successive governments’ adjustments to repayment thresholds – together with high interest and marginal tax rates – are placing an unsustainable burden on the next generation of workers”.
As a result, middle-income graduates are seeing less than half of any pay rise as it’s swallowed up by income tax, National Insurance and student loan repayments.
Meanwhile, a report published last week by the Institute For Public Policy Research argues the current British financial system is slanted towards the interests of wealthy older people and away from younger earners.
In a policy paper published last week it said: “For the past decades the chief beneficiaries of British fiscal policymaking have been older, wealthier citizens – typically, the retired.
“By contrast, the hardest hit have been those in work, particularly younger people repaying student loans through the tax system.
“That same group of people struggle to afford housing comparable to their parents and grandparents.”
In real terms, a pensioner who earns £45,000 pays a marginal income tax rate of 20%.
In comparison, a young graduate would pay income tax, student loans and employee National Insurance, which means they’re effectively taxed at a rate of 37%.
Times are tough for all of us and I’m not arguing that we need to tax pensioners more to even out the system.
Pensioners are already set for a tough winter with the energy price cap set to rise by 4% to £1,723 a year in October, the highest level in three years.
For retirees, the increase could be even higher as they already spend £1,744 a year on energy bills, so a 4% increase would cost them an extra £70 a year, according to Quilter.
RECOMMENDED STORIES
But changing the repayment terms and hiking interest rates after students had already taken out loans feels extremely unfair.
Next month’s Budget is the perfect opportunity for the Government to address this unfairness and make the system fairer for millions of graduates like me.