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Perception is reality: changing how graduates see student finance

  • 6 December 2021
  • By Paul Woodgates

Paul Woodgates is an independent adviser and non-executive director in the HE sector.

Perhaps we always suspected that student debt would take its toll on graduates. But in their HEPI Report, Hidden Voices: Graduates’ Perspectives on the Student Loan System in England, Claire Callender and Ariane de Gayardon present a stark picture of the detrimental impact student debt can have.

I am one of the lucky ones: when I went to university, it was free. So it’s sobering to read just how oppressive student debt can feel to some graduates. It’s tempting to take a logical and rational view and question why graduates seem so upset about repayments that are income contingent and about a debt which never, in fact, has to be repaid. But this is not about logic and rationality; it’s about perceptions and emotions.

If graduates perceive their student loans as burdensome, then that is what they are. We seem to have reached a situation where graduates perceive that £9,250 per year, plus maintenance, plus interest is too much to be asked to pay, while the Treasury simultaneously perceives that, because they will on average actually pay only about half that, graduates are not paying nearly enough.

Two features of the current system come through Callender and de Gayardon’s research as particularly harmful to graduate perceptions – the sheer scale of the accumulated debt, and the interest charge. I suggest both perceptions can be changed.

Graduate Contribution, not Student Loan

First, let’s stop calling it debt – for the simple reason that it really isn’t debt. In no other sphere of life would loan repayments be linked to earnings, let alone would there be no consequences at all if the borrower makes no repayments, with the balance being written off after a defined period. Try getting a mortgage or a car loan on those terms!

So if it’s not a loan, then what is it? In reality, it’s more like a capped hypothecated tax – but that’s a bit of a mouthful, so I suggest we call it a Graduate Contribution.

Today, the deal offered to prospective students by the state goes something like this: ‘You want to go university. We will lend you the money now so you can go. You will gradually have to repay your loan through a percentage of your income over a threshold for the next 30 years’. In that model, the perception of the loan balance can be overwhelming – particularly to those who are repaying slowly or not at all.

But if we change the language, we can reframe that deal as: ‘You want to go to university. You can go for free now, but you must later make Graduate Contributions through a percentage of your income over a threshold. The amount you would ever have to contribute will be capped at a level that represents what your higher education cost’.

The monetary effect of this is exactly the same, but the perception is quite different. No longer is this an unmanageable burden but simply an obligation to pay an additional tax if and when income reaches a level that makes that affordable. Some graduates will reach the cap and thereafter stop paying, while some will never get there – but none need feel that the cap represents an oppressive burden.

Increase the cap, rather than charge interest

Let’s turn to the interest charge – which feels so unfair to many, especially when interest increases the outstanding balance more quickly than repayments are lowering it.

I propose interest should be entirely scraped – indeed the notion of interest makes no sense in the world of Graduate Contribution rather than Student Loan. Of course, I recognise that will cost money (though not as much as might be assumed because so many graduates are currently set to repay less than their original loan balance so will never in fact pay any interest at all). On the basis that the Treasury is unlikely to entertain any ideas that make the system more expensive, I offer an alternative to make up the difference.

Instead of interest, the cap on the Graduate Contribution could simply be set somewhat higher than the level of the fees paid to an individual’s university. This would be justified on the basis that prospective students can apply to university safe in the knowledge that they will only contribute when they can afford to do so – that safety net has tremendous value for them so it seems reasonable to ask those who can afford to do so, to pay extra for that feature of the system. Only those who have already earned enough to pay Graduate Contributions equal to the fee paid to their university would ever have to pay this extra amount. But the existence of the cap preserves a link between what an individual gets and what they pay.

Changing the system

The approach I have set our here has three benefits in addition to changing graduate perceptions:

  • It avoids the religious or ethical concern that some have about getting into debt – thereby removing a bar to participation for some.
  • It tackles the manifest unfairness in the current system whereby those who pay the most are those who earn enough to repay the full balance but take a long time to do so, whereas the very richest – who repay much more quickly – avoid a large interest bill. In the world of a capped Graduate Contribution, paying quickly won’t mean paying less.
  • It removes the sting in the criticism made by Martin Lewis and others that it is quite wrong unilaterally to change the terms of any loan agreement (such as the level of the repayment threshold) after the loan has been taken out. By contrast, future changes to the details of the Graduate Contribution would be akin to changing future income tax rates and thresholds.

Perceptions matter. As Callender and de Gayardon show, perceptions of student debt are currently unnecessarily damaging. The idea of changing the language of student debt is not new – indeed it is recommended in the Augar report – but its time has surely come. The solutions I have presented here can sit alongside other changes to the system that will presumably soon be announced. My own belief is that, if the cost of higher education must be lower, then reducing the repayment threshold is the ‘least worst’ option – but whatever the outcome of the deliberations between Treasury, DfE and Number 10, I hope perceptions will be considered alongside cost. That might just be a win for graduates and a win for the politicians too.


  1. BurdenedGraduate says:

    I have to strongly disagree with any suggestion of a “Graduate Contribution” or “Tax”. In our society, the discourse surrounding the benefits of Higher Education to the individual – the arguments that persuade huge numbers of young people to participate in higher education – focus almost exclusively on the “graduate premium” (increased earnings) that graduates will enjoy. If it is true that graduates can expect higher earnings, then they already repay the cost of their higher education through higher income tax. If is is not true that graduates can expect higher earnings then they are being mis-sold an extremely expensive investment. Changing the language around graduate debt may serve to make it more palatable some but will absolutely not address the unfairness in the system.

    On a personal note, as a moderate-earner supporting myself and three others on a single income that, modest as it is, meets the threshold for re-payment I can assure you that the burden I experience is not just one of perception but of stark financial reality.

  2. albert wright says:

    Paul Woodgates’s suggestions deserve wide support.

    It is essential we remove the danger of some prospective university students not applying to go to university because they have a mistaken understanding of the real amount of money they need to pay to go there and the nature of the “safety nets” available.

    His proposals also make it easier to understand how the system works and provides a more accurate description.

    Graduate Contribution is much better than “loan” or “contingent payment”.

    I particularly support the abolition of the “interest payment” element of the scheme and its replacement, in terms of revenue, by increasing the absolute amount to be paid up to the cost of providing the degree.

    I would actually go further and suggest that rather than every student repaying the same fixed amount (£9,250 a year) , regardless of the subject / course studied, each student pays up to the real cost of the specific degree. Unlike degrees, the Apprenticeship funding arrangement recognises different qualifications have very different costs to deliver with Engineering and Medicine costing much more than English and Law.

    I realise this would be a major change and affect each university in different ways depending on the qualifications provided. It would have the advantage of being more business like, transparent, accurate and reflect reality and remove the need for internal cross subsidies.

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