Luke Pierre is a finance manager who graduated in 2019. He pays a higher rate of tax and is paying back a Plan 2 student loan.
He told Money Box on BBC Radio 4 that he still owes “well over £50,000” on his loan.
“This is despite paying thousands of pounds to the Student Loan Company over the last six years. And I’m paying RPI plus 3% interest on my student loan, which is an insanely high amount.”
Pierre said people going to university aged 17 or 18 are advised “this is a loan you’re not going to notice”, with low rates of interest that won’t affect you getting a mortgage, “but it turns out, it does,” he said.
“An entire generation of people that went to uni while these loans were a thing have basically been mis-sold their student loan. It’s quite shocking really,” he added.
Listening to Pierre, Nick Hillman from the Higher Education Policy Institute said we “shouldn’t obsess over student loans”.
Hillman argued that a Plan 2 student loan comes with “all sorts of brilliant features,” and pointed out they get written off after 30 years if it hasn’t been paid down “which simply isn’t there with other forms of borrowing”.
“These interest rates, which are deeply unpopular, are income related. So you only face the full 6.2% if you’re on an income of significantly over £50,000 per year,” he added.
He said that people going to university now don’t pay this interest rate, but these loans are only written off if they’re not paid off after 40 years, not 30, “so they’re hit in other ways”.
The freeze on student loans came at the same time Reeves announced she would be extending the Conservative-initiated freeze on income tax and National Insurance thresholds for another three years.
When those thresholds are frozen, more income is taxed at higher rates as someone’s earnings rise, a process known as fiscal drag.
Plan 2 loans were introduced from 2012, at the same time the Conservative-Liberal Democrat coalition government tripled tuition fees to up to £9,000 a year.
