Many of us will remember the pressure of results day. Those nerve-wracking few moments as I opened my own envelope with my grades in will stay with me for the rest of my life.
The students and graduates of today are no different. They face the same challenges and the same doubts that people my age did. When my three boys each got their own A-Level results, what worried me most was not how many As or A*s they received, but the significant financial burden that their higher education would place on them over the next thirty years.
As Conservatives, we believe that if you work hard, you will get on in life. So why are we effectively punishing hardworking graduates by saddling them with unaffordable debt?
Our graduates face an unenviable position. Burdened with, on average, £45,000 worth of debt, they are forced to navigate the working world, while juggling the challenges of soaring house prices and the high cost of living. Alarmingly, the Telegraph estimated that young graduate professionals will now pay a marginal tax rate of 52.25%.
Since 2010, Conservative Governments have taken significant steps to reform higher education and move away from Labour’s arbitrary obsession with university numbers. However, university numbers remain high. In 2020-2021, there were 2,182,560 students from the UK enrolled in higher education. That is over 2 million individuals, including my own children, who will face the challenge of trying to pay off their student debt.
Students start repaying their loans from the April following their graduation. As it stands, they will pay 9% of anything they earn over £27,295. Interest is usually added to the loan balance at a rate between the rate of RPI inflation and RPI inflation plus 3%. The changes to the student loan repayment system in 2023 mean that the interest rate is set at only RPI, so the amount you owe only increases by the price of retail goods and services. This is also accompanied by reducing the threshold at which they begin repayments to £25,000. However, this also means that lower and middle-earning graduates will repay a greater share, the equivalent of more than a penny in every pound that they will ever earn during their lifetime.
These reforms to the student finance system were a good step in increasing the proportion of student debt that is eventually repaid to the taxpayer. With student debt standing at around £206bn, and projected to increase to £460bn in the 2040s, this makes for sound fiscal policy. However, it does not directly address the grossly unfair costs faced by our children who are graduating today.
Recent research by University College London has demonstrated that student loans do not only affect the financial situation of graduates, but that the debt accrued also has a long term impact on their futures. Findings show that student debt both discourages entrepreneurship and restricts career choice, resulting in lower job satisfaction. This may also extend into the personal life of young professionals, with key life milestones such as marriage or buying a house being delayed or even never to be realised. This psychological and material impact is unfair. Our graduates should have the ability to choose what career they want to pursue to live a fulfilling life.
We recognise the punitive rates of interest paid by our graduates. And yet we also know that it’s not feasible to write off all the debt. So I propose that the Chancellor uses the Spring Budget to go further and outline a commitment to ensuring that no graduate pays interest at a rate higher than the average available commercially. This will help millions of graduates who deserve a fairer rate of interest, allowing our young professionals some financial stability, and giving them the certainty to make sound life choices.
We should be incredibly proud of our higher education sector. British universities are a national asset, with four of our institutions ranking in the top ten in the world, and provide young people with opportunities that shouldn’t be overlooked.
It is no wonder that millions of school leavers make the choice to go to these fine universities every year. They do so to better themselves, and to gain the skills to go on and get a job and start a family. I think it is profoundly unconservative to punish them for doing so. We need urgent reform now.
Click here to subscribe to our daily briefing – the best pieces from CapX and across the web.
CapX depends on the generosity of its readers. If you value what we do, please consider making a donation.
