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Three in four UK grads won’t pay off loans: Report

Almost three-quarters of U.K. graduates will not earn enough to repay their loans in full, leaving the government with a huge write-off bill, a report warns.

Around 73 percent of UK graduates will be unable to repay all of their student loan, according to a report from think tank the Institute for Fiscal Studies, with the average write-off of around £30,000.

Christopher Furlong | Getty Images

The number of can't-pay graduates has rapidly increased since higher education funding was overhauled in 2012, leading to a rise in tuition fees and changes in repayment methods. Now higher-earning graduates will have to repay more – and it's going to take them longer to do.

The report said that "under the old system, nearly half would have repaid their debt in full by the age of 40; only a very small fraction – about 5 percent will achieve that under the new system."

Student loan shake-up

Student loans were only introduced into the UK higher education system in 1990 -- before then, universities were almost exclusively state-subsidized. Students were also given a grant to help with living expenses, but this was phased out during the 1980s.

Under the overhaul of higher education, direct funding through teaching grants was abolished for the majority of courses in 2012. Any shortfall was made up by an increase in student tuition fees, the basic cap of which rose from £3,375 to £9,000. This meant a significant increase in the amount students have to borrow.

"We estimate that students will leave university with nearly £20,000 more debt, on average, in 2014 prices (£44,035 under the new system compared with £24,754 under the old system)," according to the report.

Ticking time-bomb

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Rising write-offs coupled with a dearth in student loan repayments could create a fiscal headache for the UK government in years to come.

The UK government continues to underestimate the value of student loans that will never be paid back.

Outstanding student loans will quadruple to £200 billion by 2048 up from £46 billion in 2014, according to a report released by the Commons Select Committee in February.

Repayments in your fifties

The Institute for Fiscal Studiesalso found that graduates will be making repayments well into their 40's and 50's.

Median earners will still owe around £39,000 at the age of 40, and will have to pay back around £1,500 a year throughout their forties.

Conor Ryan, Director of Research at the Sutton Trust, which commissioned the report, said: "For many professionals, such as teachers, this will mean having to find up to £2,500 extra a year to service loans at a time when their children are still at school and family an mortgage costs are more pressing."

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