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Student loans: a cost to us all

22 January 2024

Image gdsteam via Flickr (CC BY 2.0).

Student loans have had a detrimental effect on generations of individual students. They aren’t a good deal for taxpayers either. A new report highlights the increasing cost of student loans for government.

Only some student loans are repaid by students. The remainder of the cost is picked up by the taxpayer, but that’s not all. A report from the Institute of Fiscal Studies released on 9 January has brought attention to the government cost of financing those student loans which are repaid.

Higher costs

These financing costs have changed as a result of increases in government borrowing costs over the past two years. Previously the government could borrow at a lower rate of interest than the interest charged on student loans – which had stayed high during the period of generally low rates.

While those conditions held, borrowing to lend money to a student who goes on to repay the loan in full was a profitable transaction for the government. The interest paid on its extra borrowing is more than offset by the interest it receives from the student. That surplus helps to offset the cost of loans not repaid.


Now, in 2024, the opposite is true as interest costs on the government’s borrowing exceed the interest payments received from the student. This means that the government can now expect to lose money on funding even the student loans of those graduates who repay in full!

The sums of money involved are eye-watering. And none of this money will reach our education system. It will all be spent in servicing the debt.

“The government can expect to make a loss.”

The IFS says that if borrowing costs had remained as at the end of 2021, the government could have expected to earn a total net surplus of £3.2 billion on student loans to the 2023 university entry cohort. With the current borrowing costs, the interest rate spread is negative and the government can expect to make a loss of £7.3 million.

Student loans were first introduced under Margaret Thatcher. Under the Blair Labour government, education secretary David Blunkett abolished the student grant and replaced it with loans and tuition fees in 1998.


This policy has over the years saddled the student with lifelong debt, undermined university funding and drained public finances. It is now entering a new and more destructive phase.

Last June the shadow education secretary claimed that the Labour party will reduce monthly repayments for students. There was little detail and little credibility. The situation needs fewer soundbites and more concrete, workable plans.

The student loan system is dysfunctional for students, universities and the nation. The onus is on university teachers and the National Union of Students to begin the national conversation to dismantle it.