Thousands of graduates are caught in a student loan ‘debt trap’ where the interest being added dwarfs any headway they make, as highlighted by Lucy O’Brien, who was shocked to discover how high interest rates led to ballooning debt.
Like many of her ‘plan 2’ student loan peers, O’Brien didn’t think twice about diving into a master’s degree after her undergraduate course in 2021. She admits she was naive about the additional financial burden. Four years after finishing her master’s, she is using savings meant for a house deposit to repay her postgraduate loan in full.
In response to outrage over ballooning debts, the government announced a 6% cap on interest rates for plan 2 undergraduate and plan 3 postgraduate loan repayments from 1 September. This provides slight relief to higher earners on salaries of £52,885 or more, who now pay a maximum of 6.2% on undergraduate loans and another 6.2% on postgraduate loans. However, most plan 2 graduates will still see their interest rate rise in September because it is linked to inflation.
O’Brien logged onto the Student Finance portal and was shocked to see her total debt had risen from £51,529 to £65,879. Her master’s loan, initially £11,570, still showed a balance of £12,737 despite £2,000 in repayments. She calculated that if she continued monthly payments on the same salary with a 6% cap, it would take until mid-2034 to clear it, costing about £7,000 in interest. Essentially, her master’s degree would cost over £18,500.
Deciding to tackle the postgraduate loan first, she withdrew £6,000 from her house deposit savings and made a lump-sum payment. She plans to do the same at the end of 2026 to be completely rid of it. She acknowledges that many graduates view their debt as out of sight, out of mind, knowing it will be written off in 30 years, but the reality is crippling. Student loan repayments burden monthly pay cheques without making a dent in the inflating debt.
O’Brien considers herself in a better position than most, having taken minimal maintenance loans and living with family while studying. She has friends who will soon be over £100,000 in debt. While she delayed buying a house, she believes it makes long-term sense: she saves thousands in interest and will get a salary boost once the monthly postgrad deduction ends, allowing her to rebuild her deposit.
