UK Treasury to profit from final year of controversial student loan scheme, says analysis

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The National Union of Students has accused ministers of profiting off graduates by making a surplus of nearly £700mn from the final cohort of those on the most contentious student loan plan, as it added to pressure on UK chancellor Rachel Reeves by setting out an alternative repayment scheme.

The Treasury will receive £679mn more in loan repayments from students in England who started university in 2022 than it paid out in tuition fees and teaching grants, according to estimates by consultancy London Economics.

The findings highlight the extent to which students on the “plan 2” system, who started university between 2012 and 2022, are now financing the full cost of their education after repeated changes to repayment terms designed to raise money.

The analysis finds that some of the biggest changes happened as a result of freezes to repayment thresholds under the Conservative government, but Labour ministers now find themselves the focus of graduate anger after Reeves used a similar revenue-raising measure in her Budget last year. The income threshold at which graduates repay 9 per cent of their salary will be frozen at £29,385 from next April.

Prime Minister Sir Keir Starmer has promised to look at ways to make student loans “fairer”, and calls for his government to reform the system are likely to intensify after local elections next month at which younger voters are predicted to desert Labour for the Green Party. The Greens have said they would write off student debt and scrap tuition fees entirely.

As a result of repeated threshold freezes since 2022, graduates who began courses that year and earn £40,000 in 2032 will be paying £740 more that year than if repayment thresholds had risen with inflation, London Economics estimates. Over their lifetimes, female graduates in this cohort will repay an extra £16,900 and male graduates an additional £13,400, according to the consultancy.

The Institute for Fiscal Studies has previously estimated that the Treasury will make a profit off student loans for the 2022 intake but overall contribute about £700mn to their university education once teaching grants are included. As a result of slightly different estimates of lifetime earnings and loan repayments, London Economics estimates the Treasury will make a £2bn profit off the loans in current prices, falling to £679mn once teaching grants are included.

Amira Campbell, president of the National Union of Students, said that “government should not be profiting from our debt”, warning: “These past few months, we’ve seen a reckoning that young people will not stand by while politicians play with our debt and change the terms of a loan we signed before we could vote.”

Under an alternative proposal put forward by the NUS and the Higher Education Policy Institute think-tank, monthly repayments would start at 3 per cent for lower earners, rising to 5 per cent and then 7 per cent and then falling back to 3 per cent of salary more than £57,571. They estimate this would mean the Treasury no longer made a surplus, but would still leave graduates paying the full cost of their education.

Rose Stephenson, director of policy at HEPI, said “there is no perfect solution, only a set of trade-offs”, but pointed out that “today’s graduates are being asked to shoulder more than those who came before them”.

A government spokesperson said: “We inherited the student loans system, including Plan 2, which was devised by the previous government. This government has increased the repayment threshold for Plan 2 loans twice in the past two years — the first increases since 2021 — and we heavily subsidise the student finance system.”