In this article, Richard Hartigan, actuary and author of “Student loans: failing students” for the Institute and Faculty of Actuaries, explains why student loans could be the next mis-selling scandal.
Student loan infrastructure unfit for purpose
In April 2025 I wrote a piece entitled ‘Student loans: failing students’ for the Institute and Faculty of Actuaries (IFoA) ‘think’ thought leadership series.
My aim was simple: to highlight that UK student loan infrastructure is completely unfit for purpose; harming students/graduates and causing knock-on broader societal issues. These issues include: lower household formation, delayed first-home purchase, later marriage, fewer children, lower retirement savings, and particularly affect disadvantaged students from lower socio-economic backgrounds.
I proposed solutions, including treating all students from all class-year cohorts from all types of study equally (there are currently significant disparities).
Further proposals included moving to a more sensible/logical interest rate model, and raising the point at which repayment kicks in; both reforms that will alleviate some of the worst aspects of the current system. The system in Australia was favourably compared and recommended, with some minor tweaks.
Students are loaded with too much debt
In examining the UK’s student loan infrastructure I could not help but bring to mind the maxim ‘a camel is a horse designed by a committee’. It’s unfitness for purpose and dysfunctionality is beyond question.
I’ve talked to many graduates since the ‘think’ piece was published. One graduate had studied at both undergraduate and graduate level before entering the workforce: he now suffers from a near-lifetime increase in his marginal tax rate of 15%. Another graduate’s student loan balance had ballooned to more than £100,000: even though he made the required repayments year-on-year, the loan balance ballooned further. These examples are far from unique.
Simply put: students are being loaded with too much debt. In 2009, annual tuition fees were £3,225. Today, they sit at £9,275, an increase of almost 7% per annum.
Why extend the loan term?
The Government and the Student Loans Company (SLC) know full well that students are being loaded up with too much debt. How do we know this? Simple: the changes made in the UK’s student loan infrastructure for students entering education for the first time from 2023 onwards lowered the interest rate and elongated the maximum period of repayment from 30 years to 40 years; a clear admission, if ever there was one.
SLC failing on FCA principles
The SLC sits outside the remit of the Financial Conduct Authority’s (FCA) regulation. In July 2019 the Department for Education, in their ‘Tailored Review’ of the SLC recommended that the SLC “… initiate an exercise to determine appropriate measures from industry best practice guidance against which they can review/monitor the SLC’s performance e.g. PRA risk framework, UK FRC Corporate Governance Code and FCA principles.”
In the interests of brevity, I’ll pick out a few of the more-pertinent FCA principles: Integrity, Market Conduct, Customers’ Interests, Consumer Duty. It is quite clear that the SLC is failing to deliver on these principles, and possibly others.
Picking out Consumer Duty: the purpose of Consumer Duty is that there is “a general expectation by the FCA that firms should conduct their business to a standard which ensures an appropriate level of protection for retail customers.”
Helpfully, the FCA defines consumers requiring a “high level of protection”:
“(1) that they typically face a weak bargaining position in their relationships with firms;
(2) that they are susceptible to cognitive and behavioural biases;
(3) that they may lack experience or expertise in relation to products offered through retail market business; and
(4) that there are frequently information asymmetries involved in retail
market business.”
If one was to define a school-leaver / prospective student as a consumer of financial products, one would be hard-pressed to derive a better definition than above.
Government and SLC KNOW they are failing in their Consumer Duty
But what does the SLC do, and continue to do? With apparently no regard for the student’s ability to repay the student loan, sums totalling in excess of £60,000 are regularly dispensed over the student’s 3-year study period. Some simple maths: the current interest rate is 7.3%. Annual interest on £60,000 equates to £4,380. Graduates are required to repay 9% of their salary in excess of £25,000. Just to break even and prevent the student loan balance from ballooning further the graduate needs to be earning £73,667. It is quite clear that the vast majority of graduates will not (ever) meet this hurdle.
I am going to level a serious allegation: the Government and the SLC know that they are failing in their Consumer Duty to students, and they seem unrepentantly determined to continue Business As Usual unless and until they are called out.
Students have become profit centres
I don’t think it is histrionic to state that this issue has the opportunity to be bigger than the PPI mis-selling scandal, the Post Office (Horizon IT) scandal, or the more-recent Car Finance scandal. It is that serious. Whole generations of students are being used as profit centres by the Government. It is an over-ripe scandal and must be stopped.
A call-to-arms: I’m passionate about this issue. If you are similarly passionate, raise it at every opportunity. It is only through constant pressure that historic injustices of this magnitude are redressed.
You can read the report here: https://actuaries.org.uk/document-library/thought-leadership/think-thought-leadership-series/think-issue-10-student-loans-failing-students.