Four-fifths of student loans are growing faster than graduates repay them
Four-fifths of graduates have seen their student loan balance grow faster than they are repaying it, new data reveals.
A Freedom of Information (FOI) request revealed that the proportion of students who are seeing their debt increase despite making repayments rose from 76 per cent earlier this year to 82.6 per cent in May 2026.
More than seven million student loan balances had increased as of May while around 1.5 million had decreased, according to the FOI request by Compare the Market.
Just 17.4 per cent of graduates saw their loan amount decrease – placing further pressure on the government to reform the student loan system.
One unlucky graduate owes the Student Loans Company £314,356, more than the average house price in the UK.
High inflation in the past five years has driven up the interest rate charged on student loans, making a substantial difference to whether graduates are seeing balances reduce or climb despite repayments.
More than four in five graduates have seen their student loan balance grow despite making repayments
In 2020-21, students on a ‘Plan 2’ loan, the most common kind, would pay a maximum of 5.6 per cent interest on their loans, dependent on income.
But in 2024/2025, the maximum interest rate a graduate could pay shot up to 7.3 per cent.
When the maximum interest rate dropped in 2021/2022 to 4.5 per cent, the percentage of graduates with rising student loan balances reduced to 62 per cent.
Thousands of graduates responded to an official inquiry in May to tell of massive levels of ‘frustration and upset’ with the loans system.
Repayments are usually deducted automatically from graduates’ wages – but what they pay is often dwarfed by the interest that is being added every month.
Chancellor Rachel Reeves faced criticism last year for freezing the salary threshold above which most graduates, on ‘Plan 2’ loans pay back the loan. She raised the threshold to £29,385 in April but then froze it for the next three years.
This created an effect similar to fiscal drag where more people get pulled into tax brackets when thresholds do not rise in line with the cost of living. The announcement, in Reeves’ November Budget, will mean more graduates will be dragged into repayments than if the threshold rose in line with inflation.
The move was branded ‘not moral’ by campaigners, who said the Government was treating student debt like a revenue-raising tax.
Graduates will be on Plan 2 if they took out an undergraduate student loan between September 2012 and July 2023 in England and Wales. It is the most common plan. Plan 3 student loans cover postgraduate master’s or doctoral courses in England and Wales.
Plan 1 student loans cover those who studied in England and Wales in the period before 2012, and Plan 5 from August 2023 to present. Plan 4 relates to Scottish students.
More than 2.8million graduates owe at least £50,000, a separate FOI found.
Sajni Shah, money expert at Compare the Market said: ‘Many people assume that once they start repaying their student loan, the amount they owe will gradually start to come down. These figures suggest that isn’t always the case.
‘For some graduates, it can be frustrating to see their balance continue to rise despite making repayments.
‘That’s because student loans work differently from most other forms of borrowing, with interest continuing to build over time.
‘While repayments are linked to earnings, meaning borrowers only repay when they earn above a certain threshold, it’s still important to understand how your loan works and how it could affect your finances in the years ahead.’
