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Student Debt and Intergenerational Fairness

When I started my undergraduate degree in 2003 tuition fees were capped at a mere £1,000 per year, though the Blair Government was already threatening to increase those fees threefold. Despite paying some fees and leaving University with a student loan that I’m yet to pay off I was one of the lucky ones. My sister, who started her degree a mere five years later, had to pay £3,000 in fees per year. And if you started your degree in 2012 or later then you’d be looking at £9,000+ a year. The speed with which tuition fees have increased is staggering; I have benefitted substantially compared with people just five to ten years younger than me. On the other hand, those who went to University less than ten years before me benefitted from zero fees combined with generous maintenance grants.

The inequality doesn’t just lie in the size of student fees either. The terms and condition attached to student loans have changed significantly. At one point we were all told that a student loan was the cheapest loan you could ever get, so you should take advantage. Students from privileged backgrounds took out a full loan and put it into a high interest savings account, allowing them to make a profit before paying it back in full. In 2009, interest rates on student loans taken out before 1998 dropped below 0%. Students of today face interest rates of up to 4.6%, rising to 6.1% from next month. The interest rates remain relatively low for those who took loans out before 2012.

Let us take a moment to think about what an interest rate of 6.1% actually means for a student today. A standard three year degree at a Russell Group University will cost £27,750 in fees. If you also take out a full maintenance loan then you can borrow an additional £24,600 (or more if you studying in London). You leave university with a debt of £52,350 plus interest (which is already over £6,000). In order to simply pay of the interest in the year after you graduate you would need to find a job that pays over £60,000. Even if you only took out the tuition fee loan then you’d need to earn over £42,000 to pay off the interest. These salaries are unreachable for most. At such high interest rates it’s hard to see how anyone but the super elite will pay their loan back. Many will never even make a dent in the interest. Essentially, this system becomes a graduate tax for those unfortunate enough to have been born too late. You could argue that a graduate tax makes sense as it is progressive, but then why not introduce one properly rather than by stealth? And what of all the previous graduates who benefitted so handsomely without being essentially taxed extra for 30 years?

To add to this, the Universities Superannuation Scheme (USS), which is the pension fund for many academics, has just made national news for having the largest deficit of any UK pension fund. The deficit more than doubled last year, to £17.5bn. This raises the prospect of student fees rising to plug the deficit. It’s also likely that current academics will see the value of their future pension reduced for the third time since 2011. This raises the prospect that future undergraduates will be saddled with an even larger loan, at a higher interest rate; some of these undergraduates will go on to further study and eventually become academics, but having already helped pay the pensions of previous academics they will be left with poor pensions themselves and continue to pay more. This generation is being squeezed at both ends.

There is no pithy conclusion to this blog post, but it is clear to me that a radical rethink is needed in terms of financing our universities. The current system has been referred to as Frankenstein’s monster by one of its original architects, which is, perhaps, the most appropriate way to finish this post.

Dr Melanie Channon (nee Frost) is a Research Fellow at the Oxford Institute of Population Ageing working on the Collen Programme. Melanie is a trained demographer and social statistician, and her primary areas of research interest are the drivers of fertility transition in developing countries, son preference, and gender statistics. She has expertise in the demography of both Asia and Africa, with a focus on Nepal and South Asia.

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