3 hours ago
13
Like many of my drowning-in-debt “plan 2” student loan comrades, I didn’t think twice about diving straight into a master’s degree, bright-eyed and fresh out of my undergraduate course in 2021.
To say I was naive to the additional financial burden would be an understatement. Even less did I think that, four years after finishing my master’s, I’d be using the savings money I’ve built up – which I’d planned to put towards a deposit to buy my first property – to pay back my postgraduate loan in full. And yet here I am.
This month, in response to the row over millions of graduates trapped by ballooning debts, the government announced a 6% cap on interest rates for plan 2 undergraduate and “plan 3” postgraduate loan repayments from 1 September this year.
This will provide slight relief to higher earners – those on salaries of £52,885 or more – who are now paying the maximum interest rate of 6.2% on their undergraduate loan, as well as a further 6.2% on postgraduate loan repayments.
However, it was confirmed this week that most plan 2 graduates will still see their interest rate rise in September because of the way it is linked to inflation. In simple terms, the plan 2 people currently pay between 3.2% and 6.2%, but this will rise to between 4.1% and 6%.
The announcement of an interest rate cap came after months of mounting outrage from thousands of graduates like me, who, despite having consistent work and starting to make sizeable monthly repayments since graduating, are caught in a student loan “debt trap” where the interest being added dwarfs any headway we make.
In the wake of the loans furore, I’m sure I wasn’t the only graduate that – perhaps for the first time – logged on to the Student Finance portal to check my remaining debt balance.
When I did, I was shocked to see that the amount I still had to repay had risen from my initial total borrowing of £51,529 to £65,879.
My master’s loan, in particular, stood out – perhaps because I thought that after three years of consistent repayments, I would have at least made a dent in this smaller loan. Evidently not: though I had initially borrowed £11,570 and have repaid approximately £2,000, I still owed £12,737.
I calculated that if I continued to pay my master’s loan off monthly, assuming I stayed on the same salary and the cap remained at 6%, it would take me until mid-2034 to clear it, and I would hand over a total of approximately £7,000 in interest. Essentially, my master’s degree would end up costing me more than £18,500.
So, knowing that my undergraduate debt was simply too big to tackle, I decided instead to start clearing my postgraduate loan.
At the beginning of the year, I withdrew some of my savings originally put away for a house deposit and made a lump-sum payment of £6,000 (about half of the current total).
I’m planning to do the same thing at the end of 2026, so that by this time next year I should be completely rid of my postgraduate loan. You might be thinking: is it worth it?
The short answer is yes. There’s a common theme among us graduates: out of sight, out of mind. Lots of us, myself included, tend to view our ever-increasing debt as simply a fact of life, safe in the knowledge that in 30 years it will be written off anyway.
But the reality is that it’s crippling us financially. As the cost of living and rising inflation continue to make life for young people in Britain increasingly difficult, student loan repayments burden our pay cheques every month yet continue to make no tangible dent on our inflating debt.
The worst part is, I’m in a better position than most. I took out the minimum amount of maintenance loan (as well as the standard tuition fee loans) throughout my undergraduate degree after receiving an academic scholarship, and moved back to my family home to work alongside studying my MA in London.
I have many friends that, soon enough if not already, will be more than £100,000 in student loan debt.
So, while I may have delayed buying a house for another year, it makes sense in the long term. Not only will I be saving thousands in interest, it also means my salary will get a healthy boost once free from the monthly postgrad loan deduction – money which I can then put back towards building a deposit.
Hey, if nothing else, at least it will help my credit score.
