The graduate debt trap

Tony Blair set a target: 50% of young people in higher education. David Willetts built the fee structure around it. The idea was that graduates would earn more, repay from those higher earnings, and the state would carry the rest. Both parties backed it. Neither costed it honestly.

Interest starts accruing at RPI + 3% while a student is still in lectures. The SLC charged 6.2% on loans in 2025-26. The Bank of England base rate was 4.5%. The government's own forecasts expect to write off 32p of every £1 lent. The outstanding debt stock is projected to peak at £492 billion.

The 2010 Browne Review recommended a lower rate, RPI + 2.2%, with interest rebates for low earners. The government adopted the rate structure but dropped the rebates. It kept the mechanism that collected money and removed the one that protected borrowers who weren't earning enough to cope with compound interest.

Martin Lewis called this "not moral." Kemi Badenoch called student loans "a scam." They don't agree on much else.

Plan 2 borrowers (post-2012) now owe an average of £48,470. Most will never clear the balance. The system was designed that way. After 30 years the debt is written off. The government books a loss decades from now, which is convenient for today's Chancellor. The 22-year-old graduate, meanwhile, spends their best earning years with 9% taken from every pound above £27,295.

The IFS measured lifetime earnings for graduates against similar people who did not go to university. Medicine adds roughly £500,000. Economics adds £320,000. Creative arts subtracts £169,000. The range is enormous and the information is freely available, but it reaches almost nobody at the point when they're choosing a course.

Student loan repayments appear on the payslip next to income tax and National Insurance. Technically they are loan repayments, not a tax, and they're written off after 30 years. In practice, most Plan 2 borrowers will repay for the full 30 years without clearing the balance. The 9% is simply gone from their pay packet, month after month, for most of their working life.

Between £100,000 and £125,140, a Plan 2 graduate keeps 29p of every extra pound earned. The personal allowance taper, National Insurance and the 9% loan repayment stack on top of each other.

The domestic tuition fee has been frozen at £9,250 since 2017. Inflation has eroded roughly 30% of its real value since 2012. Universities responded in two ways: inflating grades and recruiting more international students. They did not, on the whole, cut costs.

In 2010, 6.7% of students who entered university with DDD at A-level went on to get a first. By 2023 that figure was 24.4%, a 264% increase. These are students with the lowest entry grades, and they are now four times more likely to leave with the highest classification. The Office for Students says 39% of the overall increase in firsts cannot be explained by changes in who is studying or what they're studying. It offers no alternative explanation.

Grade inflation was already a problem before generative AI arrived and made it worse. A PLOS ONE study found that ChatGPT exam answers went undetected 94% of the time and scored higher than real students. An estimated 88% of students now use AI for assessments. Essay mills were criminalised in June 2022, but universities still logged nearly 7,000 AI misconduct cases in 2023-24.

The three-year, essay-based assessment model was built for a world where producing a passable essay required effort. That world no longer exists, and universities have not adapted to the one that replaced it.

What follows is about university management, not about the students themselves. International students respond to the incentives on offer; anyone would. The question is why institutions built a financial model so fragile that a single policy change could wreck it.

International student fees now account for £11.8 billion, or 23% of all university income. One in six universities draws more than a third of its revenue from overseas. When the government tightened visa rules in 2024, 45% of universities went into deficit.

The median vice-chancellor earns £340,901. In 2024-25, universities cut 13,300 jobs while spending £303.3 million on severance packages. Across the sector, 10,447 staff earn over £100,000. Whether this represents value for money is a question the sector prefers not to ask in public.

The system enables a pathway. We don't know how many follow it end to end, because the Home Office doesn't publish that data. But each step is documented and each incentive points the same direction.

A foreign student is recruited with IELTS 6.0 (component scores of 5.5 accepted at many institutions). They graduate with an inflated degree from a system where nearly a third of awards are firsts. They move into care work, which sits on the shortage occupation list, and remain in the UK. After five years they qualify for Indefinite Leave to Remain. At pension age, Pension Credit provides £11,809 per year after £18,600 in National Insurance contributions.

Pension Credit is means-tested. Not every ILR holder will claim it. But for those who do, the arithmetic stands.

The domestic graduate who funded this system through 35 years of NI contributions totalling £220,000 receives a state pension of £11,973. That is 8% of the contributions for 98.6% of the pension.

Everyone in this chain gets what they need except the domestic student. Universities bank the fees. Care homes fill their rotas without raising wages. The Treasury avoids spending on apprenticeships. And the 22-year-old from Middlesbrough who took on £50,000 of debt on the strength of a prospectus? They're still repaying it at 40.

A median electrician, incidentally, earns £39,039 a year with no student debt at all. Schools don't tend to bring this up at careers day.