Abolish interest charges on student loans

Cancel interest charges on all student loans. We believe placing this burden on the backs of those that want to succeed in life is abhorrent and short-sighted. These charges penalise our brightest and best, the very people that contribute the most to society.

Charging interest on student loans burdens graduates with growing debt, often £50k+ while many never fully repay due to income-contingent terms. We believe that abolishing interest would make higher education truly accessible, without a lifelong financial penalty and also boost social mobility and productivity by freeing young people from debt drag. Education benefits society; taxpayers already subsidise it—we want to remove this unfair tax on ambition.

The student finance system removes upfront financial barriers for students entering higher education and remains a deliberate investment in our young people. The Government does not make a profit on the student loan system, rather the student loan system is heavily subsidised by government.

To ensure that the taxpayer, many of whom have not gone to university, are not subsidising an unfair proportion of the cost of student loans, and to protect borrowers who do not go on to be high earners, the student loan system is designed to ensure that those who financially benefit most from their education make a fair contribution towards its cost. Applying interest to student loans is one way that we manage this.

Applying interest in line with inflation ensures that student loans maintain the real value of the loan over the loan term. Removing interest completely would mean that borrowers who go on the repay all, or nearly all of their loan, would repay less, in real terms, than they borrowed.

While interest rates impact the overall amount borrowed and therefore the length of time spent in repayment for borrowers who go on to repay all, or nearly all, of their loan in full, they do not alter the monthly repayment amount for borrowers. Most borrowers are not forecast to repay their loans in full and therefore do not repay the interest accrued on their loan balance. For example, for undergraduate borrowers starting in academic year 2024/25, the average loan balance at the point the borrower becomes eligible to make repayments is £45,600. The estimated average lifetime repayment in real terms is £28,000. Interest rates typically only affect the total amount repaid by mid to high earning borrowers and those with small balances, who will pay back more of their student loans.

This is a conscious decision in the design of the student loan system.

It means that if a borrower goes on to be a high earner, they will contribute more to the cost of their education, while low earners are protected by calculating repayments based on their income and cancelling any outstanding debt, with no detriment to the borrower or their family, at the end of the loan term.

Removing interest rates from student loans would mean that the taxpayer had to subsidise a greater portion of the student loan costs while those who have benefited most from higher education pay less towards its cost.

We inherited the student loans system, which was devised by previous Governments, and we are looking for ways to make it fairer.

Department for Education