The numbers are in. According to a new report released today as the government’s student loan inquiry begins, nearly a third of UK graduates believe their degree was not worth the cost. For a nation that has spent decades pushing university attendance as the gold standard of aspiration, this is a damning indictment.
As someone who has spent two decades watching the City value assets, I see a classic bubble in plain sight. The product higher education. The price a combination of tuition fees, forgone earnings, and the compound interest on a government-backed loan that now exceeds £100,000 for some. The expected return a degree that, for many, fails to deliver a wage premium commensurate with the debt. When a third of your consumers say the product is overpriced, you have a market failure.
The timing of the inquiry is no coincidence. With inflation still sticky, gilt yields elevated, and the government’s own borrowing costs rising, the Treasury is acutely aware that the student loan book is a ticking fiscal liability. Last year, the estimated cost of write-offs on student loans was revised upwards to nearly £20 billion a year. That is not a subsidy for education. It is a transfer from future taxpayers to current graduates who will never repay their loans. The system is not a loan scheme. It is a graduate tax dressed up in financial jargon.
Sceptics will argue that a degree still provides non-monetary benefits: critical thinking, personal growth, social mobility. I do not dismiss these, but the bottom line is the bottom line. If a third of graduates are saying the investment was poor, we must ask whether the higher education sector has become a deadweight on the economy.
The inquiry will hear from vice-chancellors who will defend the status quo. They will point to research output and international rankings. But the market is speaking. The number of school leavers applying to university has fallen for the first time in decades. Capital flight is occurring in plain sight: students are voting with their feet, choosing apprenticeships or direct employment over the three-year degree mill.
Let us consider the fiscal arithmetic. The government borrows at around 4% to fund student loans. It charges graduates an interest rate of RPI plus up to 3%. That is a spread that initially looks attractive, but with repayment thresholds frozen and inflation receding, many graduates will never repay the principal. The Office for Budget Responsibility estimates that 70% of full-time undergraduates will not fully repay their loans. That is a subsidy that crowds out spending on infrastructure, defence, or tax cuts.
The inquiry must address a fundamental question: is the current system efficient? The answer is no. It is a monster of perverse incentives. Universities have no incentive to control costs because demand is underpinned by state-backed loans. Students have no incentive to choose cheaper or shorter courses because the loan is the same. And the taxpayer foots the bill for rising tuition fees that have far outpaced inflation.
A more market-driven approach would see greater transparency on graduate earnings by institution and course. It would allow differential fees based on expected returns. It would reintroduce maintenance grants for the poorest, but cap total borrowing. And it would end the absurdity of loans that are never repaid, replacing them with a proper graduate contribution system that is fiscally sustainable.
Until then, the third of disgruntled graduates are a canary in the coal mine. The student loan bubble is not going to burst. It is already deflating, and the taxpayer is left holding the bag.
