Report Overview


In 2012, the government changed how higher education is funded in England. It no longer provides money directly to universities in the form of teaching grants (except for more expensive courses). To make up for this, universities can charge students substantially higher tuition fees. Students are entitled to take out a government-backed loan, which they do not have to repay until after graduation. However, due to the higher fees, students requiring loans must now borrow substantially larger amounts. Real interest rates were also added to these loans, but the threshold for repayments was also increased to £21,000 a year. This report, commissioned from the Institute for Fiscal Studies (IFS) and written by Claire Crawford and Wenchao Jin, examines the financial implications of the 2012 reforms for graduates. In particular, the authors calculate the differences between graduating under the new 2012–13 system and the old 2011–12 system. The changes made to the size and terms of student loans are key to understanding the impact of the 2012 reforms both on average and for different types of graduates.

Key Findings

Summary: Students will graduate with much higher debts than before, averaging more than £44,000. For most, this will entail higher repayments – though the higher repayment threshold means that the lowest earners will actually pay backless. Relative to the previous system, the effects will be felt most by higher earners. And the biggest effects will be felt relatively far into the future. Under the old system, nearly half would have repaid their debt in full by the age of 40; only a very small fraction – about 5% – will achieve that under the new system. In fact, remarkably, we expect that almost three-quarters of graduates will not earn enough to pay back their loans in full, being left with an average debt of around£30,000 to be written off.

  • The fact that students must now take out larger loans to cover higher tuition fees, plus the fact that they are now charged real interest on their loan while studying, means that students are now graduating with substantially higher debt than before. We estimate that students will leave university with nearly £20,000 more debt, on average, in 2014 prices (£44,035 under the new system compared with £24,754 under the old system).
  • As a result, graduates will, on average, repay substantially more in total under the new system than under the old one. In cash terms, we estimate that, on average, graduates will now repay a total of £66,897, compared with £32,917 under the old system. In real terms, this equates to £35,446, on average, in 2014 prices compared with £20,936 before the reform.
  • The lowest-earning graduates, whose income rarely exceeds £21,000 a year, will, however, pay back less under the new system, mainly because of the higher level of earnings required before repayments are made. For example, the 10% lowest-earning graduates would only repay £3,879 in 2014 prices under the new system,compared with £6,120 under the old system.
  • Higher-earning graduates, meanwhile, pay back substantially more under the new system than under the old one, making the new system more progressive (on the basis of graduates’ lifetime earnings) than the old one. For example, the highest-earning 10% of graduates would repay £60,601, on average, in 2014 prices under the new system, compared with £25,564 under the old system.
  • Despite the fact that large numbers of graduates will repay more than they borrowed, the majority will not repay their loan in full under the new system. We estimate that 73% will have some debt written off at the end of the repayment period, compared with 32% under the old system. The average amount written off will be substantial – about £30,000.