Graduates of English universities will be exposed to an increasing debt burden within the next five years, with total interest on undergraduate student loans set to double.
The government figures, highlighted by Labour as an example of the “eye-watering” debts being accrued, show that the interest charged on student loans is forecast to rise by £4.2bn to £8.6bn a year by 2024.
Most of the increase will come from the interest on undergraduate student debt after 2012, when tuition fees were nearly trebled to £9,000 a year, which will see total interest rise from £3.5bn to £7.6bn over the next five years.
The figures provide a sober warning about the debt facing the next generation of undergraduates in England, who receive their A-level and BTech exam results this week. Approximately half of sixth-formers in England are expected to progress to higher education.
Angela Rayner, the shadow education secretary, said soaring debts were creating a toxic combination for taxpayers and graduates. She repeated Labour’s pledge to scrap tuition fees.
“Under the Tories and their broken student loan system, thousands of students are being burdened with vast levels of debt that they will never be able to repay,” Rayner said.
“With almost half the cost of the current broken system being picked up by the taxpayer, the government should stop cooking the books and start being honest with the public about how we fund higher education.
“Labour will scrap tuition fees and restore maintenance grants for disadvantaged students so that access to education is a right for all, and everyone can reach their potential, regardless of their background.”
Students and graduates earning more than £41,000 a year are currently charged the top rate of 6.3% interest on their post-2012 student loans. But the annual adjustment announced last week will see the top rate fall to 5.4% from the start of September. The salary threshold at which graduate repayments start will rise in line with inflation to £26,575 from next April.
The government’s figures anticipate that three out of every 10 undergraduates in England who started in the 2018-19 academic year will repay their student loans in full, including tuition and maintenance loans.
The Department for Education said: “We want everyone with the talent and potential to be able to benefit from a university education, which is why loans are available to all students regardless of background or financial history.
“Our student loans system is designed in a progressive way so that graduates contribute an affordable amount based on their income, and the government subsidises around 47% of the cost of higher education.”
But concern over rising student debt remains a political problem for the government, which Theresa May’s administration failed to resolve by commissioning a report into tertiary education that backed cutting tuition fees.
University leaders have said that cutting their income at the same time as a potential no-deal Brexit would place them under severe financial strain, an argument supported by a leading credit rating agency.
Moody’s praised British universities for “effective cost management to maintain positive operating margins” despite a shrinking pool of potential students, rising costs and policy uncertainty. But it said a no-deal Brexit could leave universities vulnerable to falls in overseas students, whose fees are expected to mitigate cuts to funding and increased staff costs.
Edward Demetry, a Moody’s analyst, said: “The key credit risks related to a no-deal Brexit continue to be a reduction in international students, and any impact from a potentially weaker sovereign environment.”