Wealthy students dodge £6K in student loan interest

New research by Intergenerational Foundation highlights unfairness in student loans system

Students from the wealthiest families can avoid paying 6.3% in interest on student loans, by paying upfront, according to new research by the Intergenerational Foundation. Unlike their peers, these 110,000 students avoid around £6K in interest.

The report states: “Neither will these students have 9% of income over £25,000 a year for the next 30 years deducted from their pay packets. This puts self-funders at a serious economic advantage to fellow graduates in terms of saving power, spending power, and the ability to borrow to buy a home for many years after university.”

Furthermore, the interest is charged from the moment students start university and sits at more than 4 times the government’s borrowing rate of 1.5%!

Get out of jail card for wealthy

Report author Rakib Ehsan states: “The current student loan system, while being clearly inter-generationally unfair, is also exacerbating intra-generational unfairness. Even though the number of self-funders has decreased dramatically since fees were increased to £3,000 and then trebled in 2012 by David Willetts, then Secretary of State for Education, wealthier families have realised that they can give their children a get-out-of-jail-free-card by helping them to escape sky-high interest rates and a 30-year loan that could be sold off to the private sector in the future.”

Wealthier families can give their children a get-out-of-jail-free-card by helping them to escape sky-high interest rates

President of the National Union of Students, Shakira Martin, commented: “This report is more evidence that the current system is not fit for purpose. While wealthy students can avoid accruing debt and the high interest which comes with student loans, too many students from low income families grapple with a cost of living crisis and unaffordable housing. Wealthy students can focus on their studies, while too many poorer students work long hours to make ends meet.”

Martin continues, “The Government’s claims that the higher education sector is a level playing field are nonsense, and the scrapping of maintenance grants means that in fact they’ve squarely placed the extra burden on the poorest in our society. The Augar Review must explore real tangible and radical changes to the system so that everybody has the same chance of entering and excelling in post-18 education.”

Angus Hanton, IF co-founder, comments, “This analysis makes a mockery of claims that the current system is progressive, since the wealthiest kids are not even in the system. The government should treat all students fairly and that means reducing the interest rates charged while at university, reducing fees, re-introducing maintenance grants, and lowering the repayment rate so the average young person does not face a marginal tax rate of more than 40% for the next 30 years of their lives.”

Read the full report here