Economy 6 min read
England’s student debt is becoming a long-term payroll charge
The student-loan book has climbed to £294.6 billion while Plan 5 brings repayments into the payroll system from a £25,000 threshold. The result is neither a normal bank debt nor a conventional tax, but a growing fiscal claim on graduate earnings.
England’s higher-education finance system is entering a phase in which student loans look less like a temporary bridge into university and more like a durable claim on future payrolls.
The Student Loans Company says the higher-education income-contingent loan balance reached £294.6 billion at the end of the 2025-26 financial year. That was £28.0 billion, or 10.5%, higher than a year earlier. New undergraduate lending alone totalled £20.5 billion, including £11.0 billion in tuition-fee loans and £9.4 billion in maintenance lending.
Those numbers describe a public financing system operating at macroeconomic scale. They do not, however, mean that every individual graduate’s debt is rising at the same pace. The distinction matters.
The provisional average balance for higher-education borrowers entering repayment in 2025-26 was £47,730. That was lower than for the previous cohort because the first Plan 5 borrowers entered repayment in April 2026, with different terms and less accumulated interest. Even so, the long-run shift is stark: the comparable average was £10,050 in 2006-07.
The more revealing change is how the system reaches into earnings. Plan 5 applies to new undergraduate borrowers who began courses from August 2023. From April 2026, borrowers on the plan repay 9% of earnings above £25,000 a year. The annual deduction depends on income rather than on the size of the outstanding balance.
That makes student finance economically unusual. A mortgage payment is linked to the amount borrowed and the term of the loan. A Plan 5 deduction is linked primarily to salary. Someone earning £25,000 pays nothing through the normal deduction mechanism; someone earning more pays 9% of the portion above the threshold. The balance still matters because it determines whether the borrower eventually clears the loan, but it does not set the monthly bill in the way conventional consumer debt does.
For public-policy analysis, this is why descriptions of student loans as a “graduate tax” persist even though the legal instrument remains a loan. The deduction is collected through the tax system, rises with earnings and can continue for decades. It is more accurate to call it a tax-like payroll charge than a tax, because borrowers who repay the balance stop paying and those with different loan histories can face different outcomes.
The duration has also lengthened. Plan 5 balances can remain in place for 40 years after the borrower first becomes due to repay, at which point any remaining balance is written off. That design increases the chance that a large share of a graduate’s working life will be spent above or below a repayment threshold that directly affects take-home pay.
The Department for Education expects the system to keep expanding. Full-time undergraduate borrowers starting in 2025/26 are forecast to borrow £45,190 on average across their studies. For those starting in 2030/31, the forecast rises to £50,700, driven by higher fee and maintenance-loan amounts. Total student-loan outlay is forecast to increase 17% between 2025-26 and 2030-31 to £25.2 billion in nominal terms.
The tuition side is already moving. From the 2026/27 academic year, the maximum standard full-time fee at approved fee-cap providers with both a Teaching Excellence Framework award and an access and participation plan is £9,790, with a scheduled rise to £10,050 in 2027/28. Students can borrow to meet those fees, transferring the immediate cost from household cash flow to the government loan book and, later, to graduate earnings.
This makes higher education a three-way fiscal arrangement among universities, the state and future workers. Universities receive fee income now. Government provides the financing and carries the risk that some loans will never be repaid. Graduates make income-contingent payments later.
The government’s own forecast illustrates that risk transfer. It expects 55% of full-time undergraduate borrowers starting in 2025/26 to repay their loans in full. For Plan 5 full-time higher-education lending issued in 2025-26, it forecasts that 33% of outlay will ultimately be subsidised by government.
That combination is central to the economics of the model. The state is not simply lending money and expecting full commercial repayment. It is funding education through an asset whose value depends on future earnings, repayment behaviour, interest, write-offs and policy choices over several decades.
The House of Commons Library places the scale in longer perspective. It says the loan book stood at about £295 billion at the end of March 2026 and cites government forecasts showing its real value peaking at around £500 billion, in 2025-26 prices, during the 2040s.
For graduates, the practical issue is take-home pay. For government, it is an expanding long-duration asset and subsidy commitment. For universities, it is the mechanism that converts regulated fees into current revenue. Those three perspectives are increasingly inseparable.
England’s student-loan debate is therefore no longer just about whether a degree is “worth the debt”. It is about the architecture of education finance itself: how much of the cost is paid through general taxation, how much is charged to graduates through income-linked deductions, and how much of the loan book the public balance sheet ultimately absorbs.
