Your student loan is a graduate tax, and the numbers prove it

People treat a student loan like a debt: a sum you borrow and then pay off. Under Plan 5 that is not how it behaves for most graduates, and the difference changes how you should think about the whole decision.

Only four subjects clear it

We model all 27 subjects on identical terms — current tuition and maintenance, Plan 5, median graduate earnings from the DfE's LEO dataset. On those assumptions only four repay the loan before it is written off at year 40.

For the other twenty-three, the balance grows for years, repayments never catch the interest, and the remainder is cancelled. You pay 9% of everything above the threshold for forty years and the debt is never the thing you were paying off.

Why the balance is the wrong number to watch

Because repayment is a fixed percentage of income rather than a function of the balance, the headline debt barely matters. Two graduates with identical salaries repay identical amounts whether they borrowed £40,000 or £60,000.

We tested this directly: when the England tuition cap rose from £9,250 to £9,790 it changed the break-even year for precisely none of the 27 subjects. An extra £1,620 of debt is invisible against a three-year head start.

• What does matter The gap between what you will earn and what you would have earned without the degree.
• What matters less How much you borrowed, and the balance on your annual statement.
• The counterintuitive part A high outstanding balance usually means low earnings, which means you are handing over less in total.

What to take from it

If the loan is a tax rather than a debt, overpaying it is rarely sensible, and the size of the headline figure should not drive your subject choice. What should drive it is whether the career on the other side pays more than the one you could have had without the degree.

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