Mar 10, 2026, 2:47 PM ETInterview

Should you pay off your student loan? | The Economist

Rising debt levels combined with inflation mean most graduates will pay a significant percentage of their salaries until their 50s.
Critics characterize the current system as a "punitive and regressive graduate tax" due to the long repayment duration and high burden on lower earners.
The transcript clarifies the system is legally distinct from a tax because:
- Repayments cease once the loan is fully paid off.
- Loans are written off after 30 years regardless of whether the balance is zero.

The "free university" model for a small elite was replaced as participation rates increased, shifting costs to the general taxpayer.
Tuition fees increased progressively:
- 1998: £1,000 per year.
- 2006: £3,000 per year.
- 2012: £9,000 per year (the current baseline for the 2012–2022 cohort).

The general repayment model triggers when earnings exceed a specific threshold, currently set at approximately £28,000 per year for the 2012–2022 cohort.
Borrowers repay 9% of their earnings above this threshold.
Repayments stop either when the loan balance is cleared or 30 years after the borrower first starts making payments.
The repayment threshold for the 2012–2022 cohort has been frozen for three years, causing inflation-driven salary rises to drag more earners into repayment brackets earlier than intended.

The UK system is softer than the US model, which treats loans like mortgages with strict default penalties that damage credit ratings.
Anger stems from worsening terms for recent cohorts rather than the system's fundamental design:
- Higher interest rates are accumulating.
- Higher upfront fees have multiplied total debt loads.
The system functions as a regressive tax for lower earners because they rarely pay off the loan in full before the 30-year write-off, paying a higher percentage of their earnings over a longer period than under a flat-rate graduate tax.
A hypothetical "graduate tax" would require higher earners to pay indefinitely, whereas the loan system allows them to eventually stop paying, potentially lowering the rate for lower earners but increasing their total lifetime burden if they earn less than the loan cap.

The "graduate premium" (wage differential between graduates and non-graduates) has eroded over time due to the massive increase in university participation.
By age 25, half of state school leavers in the UK have started a university course.
Specific disciplines, particularly creative arts and English literature, now carry a "graduate penalty," where graduates earn less than non-graduates.
Despite the premium's erosion, graduates remain the primary beneficiaries of university education, justifying some form of cost contribution.

Early repayment is only financially rational for higher earners who are certain to clear the debt before the 30-year write-off; for others, it offers no benefit and reduces emergency liquidity.
Unlike savings, early repayments on student loans cannot be reclaimed if the borrower faces financial difficulty.
Government options for addressing the debt crisis are constrained:
- Continuing to require graduates to repay current debts.
- Writing off debt entirely, which would require a general tax increase on all citizens during a period of strained government finances and borrowing limits.