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Student debt and loan repayments: what will the 2012 reforms mean for graduates?

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Report Summary

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) 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

  • 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 back less.
  • Relative to the previous system, the effects will be felt most by higher earners.
  • 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, the authors 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.


  • Graduates will, on average, repay substantially more in total under the new system than under the old system.
  • The lowest earning graduates, whose income rarely exceeds £21,000 a year, will pay back less and higher earning graduates will pay back substantially more.
  • The introduction of a real rate of interest of up to 3% pa means that 45% of graduates will repay more than they borrowed in real terms.
  • Despite this, 73% will have some debt written off at the end of the repayment period, compared with 32% under the old system
  • An ‘average teacher’ will still owe £25,000 by their early 50s, when the debt is written off.