Key facts
- Three friends who started university in 2012 with similar student loan debt have experienced vastly different repayment outcomes.
- Plan 2 loans, introduced in England and Wales in 2012, have a higher interest rate than most other student loan plans.
- Graduates with Plan 2 loans need to earn about £63,000 or more for their loan balance to start decreasing, according to IFS research.
- The Plan 2 debt is written off after 30 years.
- One friend, earning £85,000, paid off her £37,500 debt early by borrowing from family, saving an estimated £20,000 in interest.
- Another friend, earning £72,000, has seen her loan balance hover around £47,000 for years and expects it to be written off.
- A third friend, earning £50,000, has paid off £450 in the last year but accrued over £500 in interest, causing her loan balance to increase.
Three friends who began university in the same year have experienced vastly different outcomes regarding their student loan debt, highlighting the complexities and frustrations surrounding the UK's Plan 2 loan system. Lizzy, Charlotte, and Libby all borrowed approximately £37,500 for their studies at the University of Newcastle between 2012 and 2015, a period when tuition fees in England and Wales had recently tripled to £9,000 per year and new Plan 2 loans were introduced.
While they started with similar financial burdens, their career paths, earnings, and life choices have led to divergent repayment journeys. Lizzy, the highest earner at £85,000 annually, opted to clear her debt entirely by borrowing from family, estimating this move would save her around £20,000 in interest and allow her to repay her family within four years. She acknowledged this was a privileged position, stating, "Buying your way out of the system or not being in at all is in itself a luxury. It buys you freedom."
Charlotte, a physiotherapist earning about £50,000, expressed frustration that her loan balance is still increasing despite making monthly payments. In the past year, she paid off approximately £450 but accrued over £500 in interest. Research from the Institute for Fiscal Studies suggests graduates need to earn over £63,000 for their loan balance to begin decreasing.
Libby, a project manager earning £72,000, has seen her loan balance remain relatively static at around £47,000 for several years. She anticipates her debt will eventually be written off after the 30-year term, especially as she is currently on maternity leave and expects her repayments to decrease while interest continues to accrue.
The Plan 2 loan system has faced significant criticism, particularly after the government announced plans to freeze the income repayment threshold for three years from 2027. This decision means graduates will start repaying sooner and pay more each month. Campaigners like Oliver Gardner, founder of the Rethink Repayment campaign, are urging the government to address issues such as the higher interest rate and the frozen repayment threshold in the upcoming budget, arguing that "minor tinkering around the edges" will not suffice.
The Department for Education stated it is working to make the system fairer by increasing maintenance loans and reintroducing grants, while also raising the repayment threshold for Plan 2 loans for the first time since 2021. They aim to ensure the system is financially sustainable for students, graduates, and taxpayers.