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‘Very high’ interest rates can add £40k to a student’s debt

GRADUATES can expect to spend longer paying off their student loan than they would a typical mortgage, research shows.

Some 75 per cent will fail to clear the whole of their debt before it is written off — usually after 30 years.

It means students graduating in their early 20s will be paying contributions out of their monthly wages until they are in their 50s, the Institute for Fiscal Studies found.

Amatey Doku, of the National Union of Students, said: ‘Many will still be paying off their loans at an age at which previous generations, who enjoyed a free education, might have paid off their mortgages.’

Graduates from low-income families now typically leave university with a debt of £57,000 after maintenance grants were replaced with loans in 2015, the IFS report says. And many have to contribute out of the meagre earnings from their first jobs, as the threshold at which repayments begin has been frozen at £21,000 until 2021.

The freeze and the loss of grants have contributed to a 30 per cent increase since 2012 in the repayments that the lowest-earning third of graduates can expect to make.

Expected repayments from the richest third have risen by less than ten per cent.

The IFS also said interest rates on the loans are ‘very high’ at up to three per cent above inflation — which is running at well over two per cent. A student who borrows £45,000 could repay an extra £40,000 if they go on to earn a good salary and are charged at the top rate.

‘The combination of high fees and large maintenance loans contributes to English graduates having the highest student debts in the developed world,’ the report says.

Universities minister Jo Johnson said the government ‘consciously subsidises’ students by picking up the bill if they fail to repay their loan within the 30 years. ‘This is a vital and deliberate investment in the skills base of this country, not a symptom of a broken student finance system,’ he said. ‘Young people from poorer backgrounds are going to university at a record rate — up 43 per cent since 2009.’

■ A RISE in zero hours contracts could be contributing to poor mental health among younger people, a study finds. Those with ‘a precarious relationship to the labour market’ are 50 per cent more likely to report symptoms than those in steady work, says the UCL study. Lead author Dr Morag Henderson said among the many challenges faced are record university fees and student loan debt.