There are some areas of the UK where nearly one in three have Plan 2 student loan debt – yet, in other parts, the figure is less than 1 in 30.
Estimates from Oxford Economics suggest that in Lambeth and Islington – two London boroughs – over 30 per cent of the working-age population has a student loan taken out between 2012 and 2022.
These loans, known as Plan 2, come with high interest rates – often above inflation – and can be very large because they were mostly taken out to cover tuition fees of £9,000 a year.
There is a significant disparity across the UK in the number of people repaying these loans.
For example, Oxford Economics estimates that around one in six of London’s working-age population is unemployed, but in some parts of the country, the figure is far lower.
In Great Yarmouth, Norfolk, for example, figures suggest that around 3 per cent of the working-age population have Plan 2 debt.
Fenland, Cambridgeshire, also has a low amount, with just 3.7 per cent of the population with such debt.
Areas with universities – and a high number of graduate jobs – tend to be those with the highest level of student debt.
For example, the Cities of Bristol, Oxford, and York have a higher percentage of people with outstanding loans.
And experts say that the high number of graduates repaying these loans – 9 per cent of their income over £28,470 a year – could be weighing heavily on the economy.
How student loans are weighing down on the economy
Economists point out that a high proportion of graduates paying student loans in some areas has economic consequences.
“The knock-on effect of a large tax burden on young university graduates is a much less dynamic economy, with more limited consumer spending, weaker business investment and greater aversion to risk,” said Liam Sides, associate director at Oxford Economics.
London, where around 1 in 6 working-age people have a Plan 2 student loan, has seen real consumer spending fall by 5 per cent between 2019 and 2024, more than in any other region in the UK except the North East.
Julian Jessop, an independent economist, explained: “The increasingly punitive repayments on student loans will drag on growth in at least two ways. First, the additional burden on graduates will reduce spending on other goods and services, hurting demand.
“Second, the very high marginal tax rates faced by many graduates could undermine the incentives to work and earn more, damaging the supply side of the economy too.”
While reduced spending by graduates with lower disposable income hits the economy, experts also suggest that writing off the debt could have negative consequences.
Beatriz Rilo, senior economist at the Centre for Economics and Business Research, said: “These greater repayments reduce the government’s spending bill, freeing funds that can be directed elsewhere.
“The net impact on growth will therefore depend on whether the money generates greater economic returns in the hands of government or graduates.”
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