At the risk of this reading like a GCSE maths paper, imagine two students: James and Juliet. James started university in 2011, the last year of the old tuition-fee regime. He paid tuition fees of £3,375 per year, or just over £10,000 in total. Juliet started her degree at the same university a year later, and paid £9,000 a year, or £27,000 in all. This much is familiar to everyone: fees almost tripled from one year to the next.
But in reality the cost of getting a degree has, by now, grown to be far greater than that for Juliet and every undergraduate since 2012, while being only marginally greater for James and all other pre-2012 students. Why? Because different rates of interest have been charged on their degrees.
In the ten years up to 2022, pre-2012 students like James enjoyed extremely low interest rates on their tuition loans. They were charged a rate equal of inflation plus 1 percentage point (as measured by the Retail Price Index) or the Bank of England base rate plus 1 point – whichever is lower. That has meant they paid less than 2 per cent interest every year up until late 2022. After inflation rose sharply that year, and the Bank raised rates, they are now paying high rates of interest for the first time.
Juliet, in contrast, has faced high rates of interest since day one of her degree. Post-2012 students pay inflation plus 3 percentage points. A lower Bank rate does not save them. What does that mean in practice? Between September 2012 and 2013, James was charged 1.5 per cent on his loan while Juliet was charged 6.6 per cent. Those unequal rates have continued, year after year.
The graph below shows the effect that has had. If you apply much higher rates to a much bigger loan, you end up with an estimated bill of around £48,900 for Juliet, rather than the nominal price of £27,000. James, meanwhile, is on the hook for just £12,100. He is paying just £2,000 of interest after 11 years, while Juliet is paying £22,000 of interest. (This assumes neither of them has started to pay back their loan, and ignores any maintenance grant either student may have taken out.)
They went to the same university, one year apart, and Juliet is being charged four times as much as James. How can that be right?
[See also: Monarchy is a state-sponsored tragedy]
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