Survey shows public opposition to above-inflation interest rates as graduates face ballooning debt and long-term repayments
STUDENT loan interest payments are spiralling out of control, with financial experts warning that the UK system is “broken” and increasingly resembles a “shady tax scam”, as millions of graduates struggle under growing levels of debt.
A new YouGov survey has found that Britons believe charging above-inflation interest rates on student loans is unfair, as graduates face mounting repayments that often fail to reduce their overall debt.
Around 5.8 million people with student loans taken out between September 2012 and July 2023 are now affected by ballooning interest charges. For those on Plan 2 loans, interest is linked to the Retail Prices Index (RPI) and can fluctuate monthly, reaching as high as 8% in August 2024.
For many graduates, the amount deducted from their salary each month is outweighed by the interest being added to their balance, meaning debts continue to rise despite regular repayments. Loans are written off after 30 years, leaving many people making repayments well into their 50s without ever clearing the balance.
Under current rules, graduates repay 9% of earnings above £29,385, a threshold due to rise in April but now frozen at that level until 2030, meaning more people will be drawn into repayments or face higher deductions as wages increase.
Financial experts warn the structure is creating a disincentive to career progression. Chartered Wealth Manager and Financial Coach Philly Ponniah said many young professionals feel punished for earning more.
“I’m seeing this with younger clients and it’s clearly disincentivising pay rises and progression,” she said.
“Every extra pound earned above the threshold loses 9p straight away, on top of income tax and National Insurance, while the loan balance often still grows. When people work harder or get promoted and feel worse off in real terms, something in the system is broken.”
She added that for many graduates, student loans no longer feel like borrowing for education but “a permanent surcharge on success”.
Financial adviser Samuel Mather-Holgate described the system as resembling a “shady tax scam”.
“For most of their lives they will be paying an effective income tax rate 9% higher than other workers on earnings above £30,000, with little prospect of ever paying it off unless they become a Premier League footballer,” he said.
Media editor Dawn Maria France warned that people on modest incomes are being pushed into unsustainable repayments.
“The frozen repayment threshold means more graduates are being forced into contributions beyond their means,” she said.
“This resembles a long-term graduate tax lasting 30 years, with limited relief and little chance of escape.”
Financial director Michelle Lawson said young people were being saddled with debt before their working lives had properly begun.
“Students should not be in a position where their debt grows faster than it is repaid,” she said.
“We need graduates to feel incentivised to learn, improve themselves and enter the workforce, not punished for success.”
AI consultant and author Colette Mason added that rising debt is also coinciding with declining economic returns from traditional degrees.
“The cost of acquiring qualifications is rising, while their economic value is becoming less certain,” she said.
“With housing and living costs increasing, further education is becoming a material financial risk. For many already enrolled, exit is impossible, leaving people locked into long-term debt for qualifications that don’t guarantee returns.”
The findings have reignited calls for a fundamental review of the student finance system, with growing pressure on policymakers to reassess interest rate structures, repayment thresholds, and the long-term sustainability of graduate funding.
As public concern grows, critics warn that without reform, the student loan system risks becoming less about education and more about permanent financial dependency for an entire generation of graduates.
