The Student Loan Scam

The variousstudent loan systems in the UK purport to be schemesthat allows anyone, includingthose from low-income backgrounds, to be able to achieve the highest level of education, bucking the trend of history for many higher education institutions. Whilst different in each part of the UK, at worst they hurt those from low-income backgrounds the most. They act beyond normal regulations and end up mis-selling debt to the most financially inexperienced groups in society. This piece will therefore focus on these issues, which primarily occur within the English loan system, although this does not absolve the other home nations of their substantial issues as well.

Before dissecting the myriad of controversies surrounding English student loans, there needs to be understanding of how they are sold to students and how they are then to be repaid. A ‘student loan’ can comprise of two separate loan types – tuition and maintenance. Tuition loans are paid directly to the university and cover the cost of higher education, currently £9,790 per year as of the 2026/27 academic year.  Maintenance loans are paid to the student, and are supposed to help cover some living costs. The amount given to each student is judged on annual household income, and parents are expected to cover the shortfall in costs. For the majority of students, maintenance loan does not cover all living costs. According to Save the Student, there is an average shortfall of £502 per month. A student can have one or both of these loans. Together, they are a ‘student loan’.  

Within England, there are five different student loan plans, known as Plans 1, 2, 4, 5 and Postgraduate. There are different conditions that determine which plan a student is on, which can be found here, but at the moment, Plan 2 is the most prominent, and new English loans are on Plan 5. Plan 2 has a yearly repayment threshold of £29,385 (the amount of money a student must earn after graduating before they begin to repay their loan), and the loan is charged at an interest rate of RPI plus 3%. RPI, or Retail Price Index, is a measure of inflation using common household goods to gauge the relative rise in prices over a year. Plan 5, new English student loans, have a yearly repayment threshold of £25,000, and are charged at an interest rate of RPI only. 

The overwhelming complexity of student loans is one of many issues with the scheme. The different plans, each with individual repayment thresholds, interest rates, and eligibility criteria mean that it is easy for students and graduates to not understand the terms of the loan they are taking out. Generally, consumer loans are regulated by the Financial Conduct Authority, to ensure that consumers understand their loan, what may happen if it is not paid, and how this loan may affect their financial stability moving forward. In essence, it is an instrument to make sure consumers are not mis-sold loans under false or misleading pretences. 

The Student Loans Company (SLC) are exempt from such regulation, as they are a government body. This means that people, often under the age of 18, are taking loans of, on average, £53,000 (as of 2025) from a largely unregulated body in order to fund their education. Additionally, SLC reserves and exercises the right to ‘amend’ the terms of the loans at any time. The 2026 parliamentary report on student loan problems says“If any other loan had been sold to children with the same everchanging conditions, there would be a huge mis-selling scandal”. Student loans are overly confusing to understand, and can be actively mis-sold to the most financially inexperienced people in society. This is clearly exploitation of vulnerable people, andcannot be tolerated.

Furthermore, the maintenance loan portion of a student loan does not provide enough funding for the living costs of the average student. According to a Save the Student survey, 10% of students are forced into using foodbanks, 61% skip meals to save money, 76% are worried about making ends meet, and 13% have had to use hardship funding from their university. Among other things, students also say they have had to turn to risky strategies to make money, including credit cards, gambling, drug trials, cryptocurrencies, and sex work. A functioning student loan system, the purpose of which is to enable people from all walks of life to attend university (and therefore, on a grand scale, upskill the general workforce), should never have these issues. It is not a controversial statement to say that a student receiving a loan to help them live whilst at university should not have to skip meals, go to food banks and turn to sex work just to make ends meet. The fact that this is not just possible, but actively happening is indicative of severe systemic issues within the scheme.

Finally, the scheme fails at its main objective – allowing young people from disadvantaged backgrounds to attend university. By the very nature of charging interest on whatever loan a student takes, it makes the loan act as a regressive ‘graduate tax’ once a student enters the workforce. If a student is able to pay their tuition fees without a loan, they will pay (at the moment) £9,790 per year, at maximum. A student unable to do this will pay £9,790 per year plus interest, which, on a 3 year course on Plan 2, could amount to over £580 per year in interest alone, taking the current RPI (3%) plus 3%. The longer a loan goes unpaid, which is more likely to happen to those from disadvantaged backgrounds, the more extreme the debt and interest payments become. If a student takes out a maintenance loan as well, the issue only compounds further. Because of the scale of the debt, it can disincentivise those from lower income backgrounds from going to university. In any other sector, a system that actively works against its end goal would not be tolerated and would be reformed immediately. Why is it permitted here?

Clearly, the English system is at best broken, and at worst actively exploitative. The loans are confusing and many graduates believe they were mis-sold by a regulation-exempt loans company. The loans that are given are not supportive enough, and leave many students turning to alternative, often dangerous, means of securing or saving money. Once graduated, many then find themselves drowning under a debt that can keep rising to exploitative interest rates, which only further discourages future generations from attending university. Thankfully, there is public appetite for change. A 2026 Ipsos poll shows that more than half of Britons support interest free student loans, which would eliminate the regressive nature of the current system. This is also rising, with the poll showing a 13pt increase in appetite for interest-free loans since 2023. A separate 2026 YouGov poll shows that 44% believe that at least some student debt should be forgiven, 68% see current tuition fees as too high, and 76% see current interest rates as too high. 

There is support from both graduates and the wider public for changing the system – the Government and SLC now must act, to prevent future graduates from being crushed under this system of obfuscation and exploitation. This can be as simple as adopting fully tax-funded university, as in Scotland, or scrapping interest rates on loans given, or stopping repeated year-on-year tuition fee increases. The question is not how the system can be fixed - there are plenty of better functioning higher education schemes the world over. The question is, why has it been allowed to get to this point – and why is there so little urgency within government to change it? It should not be down to journalists, students and graduates to campaign for a better system and suggest alternatives. The fact it has to be is a damning reflection of just how badly SLC and successive governments have run accessible higher education into the ground.