‘Plan 2’ graduates earning less than £45,000 are unlikely to clear debts
Government data will add to calls for reform of tuition fee system in England
Graduates on the most contentious student loan plan who earn less than £45,000 six years after leaving university are unlikely to ever clear their debts, according to official data that will add to calls for reform of the tuition-fee system in England.
Borrowers on the “Plan 2” scheme have to be earning £20,000 more than younger graduates either to see their balance fall or to be likely to pay off their student loan plus interest, figures from the Department for Education showed.
Some graduates with the highest outstanding loan balances can be earning more than £100,000 but still see their debt rising every year because of high interest payments, according to the data.
Oliver Gardner, founder of student loans campaign group Rethink Repayment, said the figures highlighted the need for ministers to “act urgently to fix the student loan system”.
“It makes no sense to run a student loan system where, unless you are among the top earners, you can never realistically expect to clear what you owe,” he said.
Plan 2 loans, for English students who started undergraduate courses between 2012 and 2022, have been subject to heightened scrutiny in recent months, with university sector leaders and graduates making vocal demands for reform.
In July, the House of Commons Treasury Committee accused ministers of mis-selling loans to students and called for a reversal of the government decision to freeze at £29,385 the threshold at which graduates start to repay 9 per cent of their salary.
The value of a degree has also come under increased scrutiny over the past year, with research from the Institute for Fiscal Studies think-tank finding the financial return on a university education is a third lower than previously estimated.
Unlike the subsequent “Plan 5” scheme, for those who started degrees from 2023, where interest is charged at retail price inflation, interest on Plan 2 loans starts at RPI and rises to RPI plus 3 percentage points once earnings are over £52,885. This is capped at 6 per cent.
However, Plan 2 loans are written off if they are not repaid after 30 years, compared with 40 years for Plan 5.
Analysis produced by the DfE in response to the Treasury Committee showed that Plan 2 borrowers had an average debt of £52,100 and that it would rise unless they earned £63,600 this financial year.
Plan 5 borrowers are forecast to graduate with £45,800 average debt and will see this balance increase unless they earn more than £43,625.
For the first time, officials estimated how likely it would be for borrowers at different salary levels to repay their balance before it was written off. Repayment typically starts in April the year after graduation.
Five years after this date, Plan 2 borrowers must be earning between £45,000 and £50,000 before their probability of repayment reaches 50 per cent.
Those earning £30,000-£35,000 by that point have only a 25 per cent chance of repaying their debts.
Plan 5 borrowers are more likely than not to repay if they are earning £25,000-£30,000 five years after they begin paying loans back. Those earning between £45,000 and £50,000 have an 81 per cent chance of repaying.
A lower share of Plan 2 borrowers was expected to repay at a given earnings level because of the “higher rate of interest accrual, higher repayment threshold and shorter repayment term”, the DfE noted.
It has estimated that only 32 per cent of those who took out a Plan 2 loan in 2022 would repay, compared with 55 per cent of those who took out a Plan 5 loan in 2025.
Nick Hillman of the Higher Education Policy Institute think-tank said Plan 5 was “less progressive” in that lower earners paid proportionately more, and that Plan 2 had “real strengths” in using higher earners to subsidise others.
But the figures would “reignite the debate because the government’s position is so incredibly weak”, he added. “They have spent two years criticising Plan 2 without making any changes whatsoever. If they don’t like Plan 2 they should change it. If they do, they should defend it.”
Plan 5 graduates begin making loan repayments once their salary reaches £25,000, against £29,385 for Plan 2, meaning they pay £33 a month more for salaries over about £30,000.
A worker on £50,000 would pay £154 on Plan 2 against £187 on Plan 5, rising to £529 and £562 respectively at a salary of £100,000.
The forecasts are based on modelling for younger graduates with Plan 2 loans who started three-year undergraduate courses in 2022 under Plan 2 and 2025 under Plan 5.
The DfE said ministers “continue to look at further ways to make the system we inherited fairer for everyone. Borrowers should also be reassured that their total balance does not affect their monthly repayments, and any outstanding debt is written off at the end of the term.”