UK Student Loans: A Tax on the Poor?
UK student loans are said to cost the poor more than the rich because lower earners repay for longer. Build a financial model to investigate whether this claim holds up.
Where this idea comes from
Start here — this is the source that inspired this exploration.
Introduction
In the UK student loan system, graduates repay 9% of earnings above a threshold. Higher earners clear their debt faster, while lower earners may repay for the full 30-year term before the balance is written off — often having paid more in total due to accumulated interest. Critics argue this makes the system regressive: effectively a 30-year tax on lower-income graduates. This exploration asks students to build financial models comparing total repayment across different salary trajectories. It connects percentage calculations, compound interest, sequences and series, and statistical modelling to a live political and economic debate.
Guiding Questions
- How much does a graduate earning £30,000 repay per year? What about one earning £60,000?
- How does compound interest affect the total amount repaid at different salary levels?
- At what salary level does a graduate clear their loan before the 30-year write-off?
- Is it accurate to call this system 'regressive'? What does your model show?
- How sensitive is your model to assumptions about salary growth and interest rates?