The total higher education loan balance for graduates in England rose by an “unprecedented” £30 billion last year because of an increase in the interest accrued, figures show.
An increase in the interest rates on student loans in September 2022 has resulted in high levels of interest across the past two financial years, although it will return to lower levels later this year.
Figures from the Department for Education show that the total higher education loan balance in England is £236.2 billion in 2023-24 – up from just £54.4 billion in 2013-14. This has risen by £30.6 billion in the past year alone, which is the largest annual jump across the eight years of data.
About two-thirds of the increase can be attributed to £19 billion in new loans issued, with the remaining third from interest added to loans that have exceeded repayments.
The total accrued interest added to loans during the most recent financial year was £15.3 billion – up from £8.3 billion in 2022-23, and just £4.7 billion in 2021-22.
Kate Ogden, senior research economist at the Institute for Fiscal Studies (IFS), said the large rise in interest accrued on student loans was a direct result of the high nominal interest rates applied to student loan balances over the past year.
“Many borrowers will have been alarmed to see their outstanding balances rise. But the way student loans are repaid – as a percentage of earnings above a threshold – means that the added interest won’t affect how much people actually repay each month,” she told Times Higher Education.
“On its own, a higher interest rate will mean some graduates, particularly those in the top half of graduate earners, find themselves making repayments for longer.”
The interest charged on higher education loans depends on which of the four different repayment plan the loans fell under in 2023-24. Recent changes made for new loan terms are not expected to have made much difference to the figures.
The £30 billion annual increase in the loan balance was “unprecedented”, according to Tom Allingham, a student finance expert at the Save the Student website, and poses “serious questions about the current system”.
“Although Plan 2 and 3 loans have had their interest capped for much of the past few years, the rate is still at a record high and it’ll be the low- and middle-earning graduates who’ll see their already slim chance of paying off the loan dwindle even further,” he said.
“We’d strongly urge the next government to review the student loan system to shift the focus onto the highest earning graduates, reducing the burden on everyone else.”
The data shows that students are graduating with average debt of £48,000 in maintenance and tuition fees – a 9 per cent increase on the year before.
Nehaal Bajwa, vice-president for liberation and equality at the National Union of Students, said that means-tested maintenance loans result in people from the poorest backgrounds ending up in the most debt.
“Essentially, working-class students are being penalised for getting an education,” she said.
“If politicians want to make higher education a tool of social mobility, they must pledge to reintroduce maintenance grants…so that especially working-class students are not saddled with unfathomable debt.”
