How we feel about the student debt crisis

Is the UK's Student Loan System really a "Loan"... or an unacknowledged Lifetime Tax on Success?

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The press have been busy reigniting a national debate (following this years budget) around student finance. The Chancellor's decision to freeze the repayment threshold for Plan 2 loans (the scheme covering around 5.8 million borrowers who started university between 2012 and 2023) means that as wages rise with inflation, more of a graduate's income will be captured by loan repayments simply because the threshold doesn't rise with them. By no means is this accidental, simply put, it's fiscal drag hidden by another name.

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Critics have argued this is more than policy tweaking. Martin Lewis (one of the UK's most respected consumer finance voices) has stepped forward, publicly challenging this move as unfair, immoral even. He's made the case that government altering repayment terms, they once promised would rise with average earnings, feels like a unilateral change to a contract graduates didn't fully understand, and has urged those affected to write to their MPs to raise their voice.

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That message hits home because the reality graduates are facing in this country is stark: many are repaying for decades, often making little dent in the capital because interest (linked to inflation) keeps them trapped. The system is designed so that, in practice, for many graduates it behaves more like an ongoing 9% marginal tax on earnings above a threshold than a traditional loan.

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Which brings us to a wider fairness question.

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A large body of evidence suggests a university education does correlate with higher lifetime earnings. Government research once noted that graduates typically enjoy a £100,000+ earnings premium over a lifetime, compared to non-graduates (even after accounting for taxes and loan repayments). Universities UK, and other analyses, similarly show graduates overtaking non-graduates in earnings by their mid-20s, with the gap widening over time.

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But if graduates are statistically more likely to earn more, and therefore pay more tax over their careers, is it fair to saddle them with what effectively acts as an additional tax? Especially when:

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• The benefits of that earnings premium aren't evenly distributed across all degree types or sectors
• Many high-earning professionals (and regions) benefit disproportionately
• The wider economic and social benefits of higher education are shared broadly across society, not only by individual graduates

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We're not just debating numbers, we need to consider intergenerational fairness, economic incentives, and trust in public policy.

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If policymakers want to sustain public support for higher education funding, perhaps they should be asking themselves: are we taxing success, or investing in it?

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