Debt Makes the World Go Round: Until It Doesn't

By Velimira Ekova

Student budgets are historically unforgiving. Textbook jokes in the academic community rely on mentions of ‘struggle meals’ and a desperate scramble to meet rent each month.

Luckily, or not, the British Government provides aid where they can. Since 1990, the system of aid has adjusted to reflect rising inflation and to attract students who would typically be unable to afford higher education.

This article will observe a graduate of average income (£30,500) treated under Plan 2 and how legislation and debate impact this hypothetical scenario's life.

For students loans represent a distant worry. Those under Plan 2 loans are being forced to reconsider this apathetic stance. News and social media platforms have been flooded with calls to reform the English Student loan system.

Current legislation markets student loans as a payment which will never be completed. University intakes from 2012-2023 likely believed payments would be required only after a certain level of income was achieved, and even then, they would be free of the loan’s burden after 30 years (Ogden, 2026). This is true: to a degree.

Over the income threshold of £28470, students will have to pay 9% of their income toward student loan repayments. For every £1 earned, 9p will go to paying off their debt.

However, interest stacks. The issue became a hot topic because of this. Interest is calculated via RPI, as opposed to CPI, poorly reflecting the true cost of living crisis in the country and rising unemployment in new graduates. Graduates have reported that after almost a decade, having paid off £25000 toward their student debt, they owe £30000 more due to crippling interest rates (Murray, 2026).

Alongside this, workers pay a portion of their income goes to supporting the welfare state, education, state pensions and so on (McInnes, 2014). With rising prices for everyday goods, the addition of high student loan repayments, and an ever-growing sum to feed into, makes a post-university life unattractive.

Worse still, UK students cumulatively pay more than their US peers, a shocking statement given average yearly tuition costs for US universities are 190% greater than those of UK schools (Hanson, 2026).

So, what is the government doing to change this?

There appeared to be initial pushback to change.

The Chancellor froze the salary threshold for repayment for three years in the government’s November budget, overturning promises from the coalition government, in 2010, that the threshold would update in accordance with average wage increases (Jones, 2026). Hence, graduates earning more in accordance with wage inflation now also must pay higher interest rates on income they were promised would remain in their pocket.

However, as of this week, the Prime Minister, after months of prolonged national debate, has promised to investigate making the system ‘fairer’ (Jennifer McKiernan, 2026).

Yet, this appears to be, for now, a vague promise of future change, likely coming from the overwhelming attack Labour has faced from opposition in the Commons regarding the student loan debate.

Starmer has failed to give a detailed plan on how this fairness will be achieved. For now, he has made alternative proposals, such as lowering the average annual electricity bill by over £100 for students (Jennifer McKiernan, 2026).

His focus is misguided and reflects a scramble for popularity, after rumours of his resignation began circulating in the media, rather than a solid plan of action.

Current students are not the focal point of this debate. This is a discussion for another day. An electricity bill decrease will do nothing to stall crippling debt of graduates under Plan 2. This is not to say issues surrounding student living costs aren’t escalating. But, by broadly focussing on the overall cost of living, the government fails to legislatively tackle the issue of spiralling student debt.

The freeze on income should be revoked, both on the basis of financial burdens to graduates and the promise made by the government over a decade ago. Students entered a contract with SFE, and the legislation passed in 2018 indicated the threshold would be amended to fit average income increases (Department for Education, 2022). To enact a three-year freeze, during a time of increasing costs, is economically dangerous in the long-term. Graduates are already leaving the country in droves, with the number increasing by 20,000 since 2023 (Coffey, 2025). This freeze will only tighten already frugal budgets and push talented, capable graduates out of Britain.

Furthermore, interest should be calculated through the Consumer Price Index. Plan 5 interest rates do this already, and whilst imperfect for a plethora of reasons independent to this discussion, graduates under this plan are ‘luckier’ in terms of interest on debt. RPI is a dangerous tool for interest rate calculations as it assumes inflationary increases are reflected in incomes. A cap was placed on interest rates to these loans between 2022 and 2024 (Domb, 2026), adjusting for increased inflationary pressures. Yet it did little to protect graduates during the abnormal inflation levels of the preceding and following years.

Legislation must change, and soon, otherwise Britain may face a brain drain which will cripple its already fumbling economy.

Sources:

• Coffey, H., 2025. This is why the UK is losing talented young people to life abroad. The Independent, 8 February.

• Department for Education, 2022. Appendix 1: Education (Student Loans) (Repayment) (Amendment) (No. 4) Regulations 2022 (SI 2022/1335).

• Domb, A., 2026. UK student loan crisis explained - everything you need to know. The Standard, February.

• Hanson, M., 2026. Average Cost of College & Tuition, s.l.: Education Data Initiative.

• Jennifer McKiernan, B. W., 2026. Starmer promises to look at making student loans 'fairer'. BBC News, February.

• Jones, R., 2026. Why the student loans row is escalating and what it means for graduates. The Guardian, February.

• McInnes, R., 2014. HMRC’s new annual tax summary: what’s in ‘welfare’?, s.l.: House Of Common's Library.

• Murray, M., 2026. I'm a doctor but will never be able to pay off my ever-growing student debt. BBC News, 22 February.

• Ogden, K., 2026. How do Plan 2 student loans work, and how have they changed over time?, s.l.: Institute of Fiscal Studies.

Edited by Artyom Timofeev

Image source: https://jamesgmartin.center/2020/09/eliminate-or-radically-restructure-federal-student-loans/