Three in four students will never pay off loans

THREE-QUARTERS of students are never likely to pay off their loans in full and their debts are the highest in the developed world, a report reveals today.

Most will continue to make payments as they enter their fifties, with average debts of just over £50,000 – rising to around £57,000 among the poorest graduates.

This is due to the Government’s increase in tuition fees to £9,000-a-year – rising to £9,250-a-year in September – and ‘very high’ interest rates.

The Institute for Fiscal Studies has warned that the majority of graduates will pay back so little during their working life that they can expect to have some of the debt written off, even some who become high earners.

It has analysed the impact of ministers’ reforms of higher education, which includes the raising of the tuition fee cap in 2012 and the introduction of positive real interest rates on debt. This is defined as Retail Price Index plus 3 per cent during study – currently 4.6 per cent, but rising to 6.1 per cent in September.

Researchers found that this reform has resulted in students accruing just under £5,800 in interest on average during their studies, compared to around £1,500 pre-2012.

However, the figure rises to £6,500 for the poorest students because of the axing of maintenance grants, which were replaced with additional loans last year. These new maintenance loans resulted in more cash in pockets than the grants they replaced, but poorer students rack up further interest during their studies.

As a result, less well-off students graduate with the largest debts, around £57,000 on average.

The IFS says that ‘the combination of high fees and large maintenance loans contributes to English graduates having the highest student debts in the developed world’.

It estimates that 77.4 per cent of students will have some debt written off after 30 years, up from around 41.5 per cent under the 2011 system.

Chris Belfield, an author of the report, said: ‘The culmination of the higher principal value and the high interest means that debt’s growing quite quickly over time and that means you have a higher level of debt that’s more difficult to clear.’

Jo Johnson, minister for universities, said: ‘The Government consciously subsidises the studies of those who for a variety of reasons, including family responsibilities, may not repay their loans in full... young people from poorer backgrounds are now going to university at a record rate.’