'I got a £44,000 student loan - now I owe £54,000’

Here’s a maths problem for you.

Adam borrowed £44,000 to go to university and has paid back £7,000 since graduating four years ago. How much does he owe?

The answer is £54,000.

That's because he is one of thousands of graduates in England and Wales who took out a type of student loan between 2012 and 2023 on which interest rates hit a record of nearly 8% earlier this year.

At the beginning of this month, interest was set at a lower level for the coming year. But at 7.3%, it remains comparatively high by historic standards.

Adam, 26, studied in London for a BSc in economics and took out his student loan in 2016.

He now works in finance in the capital and, because he earns a decent salary, Adam has been repaying his student loan for some time.

But the interest he is charged on his loan far outstrips the money he pays back every month.

“I personally think it is a bit ridiculous that four, five years on from graduation I can’t even meet the interest on my debt," he told the BBC.

"It is still going up, month to month.”

There are four student loans available for undergraduates in the UK, depending on where you live.

Three of them charge interest based on the Retail Prices Index (RPI) rate of inflation in March, which was 4.3%.

But one of them - known as Plan 2 - charges interest based on RPI in March, plus up to 3%.

Up until last year, Plan 2 applied to students from England and Wales. Students from England have since been shifted on to a new loan arrangement but Plan 2 still applies to students from Wales.

All the graduates the BBC spoke to for this story took out Plan 2 loans. Some asked us not to use their surnames because they were speaking independently of their employer.

Adam said: "I think it is entirely reasonable that I should pay back a portion of the cost of my education because I have benefited personally from it.

"I mainly take issue with the interest rates that are charged."

In the past, Labour has said that the "government could reduce the monthly repayments for every single new graduate without adding a penny to government borrowing or general taxation".

But, as they said, this would be for new graduates.

Even then, it is far from certain that any measures to help students will be announced in the Budget on 30 October. And it is the Department for Education who is responsible for student finance policy in England.

Like Adam, 28-year-old Chloe borrowed to fund her three-year degree. The primary school teacher studied for an additional year to get her certificate of education.

She left university five years ago with £54,000 of debt.

Despite making payments from 2021, the interest that has been charged means she now owes £84,000.

But Chloe said: "I was never concerned about the impact it would have after university."

She always knew she'd have to take out a loan to go to university as neither she nor her family could fund it.

"But I knew it didn't really impact me afterwards so I can get loans, I can get mortgages, I can get other things having the student loan.

"I'm not in a rush to pay it off either."

• The interest on a Plan 2 student loan is charged at RPI plus the full 3% as soon as the money is paid out to a student or university
• Repayments begin once a graduate's annual earnings reach a threshold of £27,295
• Once you begin making repayments, interest starts at RPI and increases by up to 3% as salary rises
• Repayments are made at 9% on earnings over the threshold
• Student debt does not affect a graduate's credit score
• If a Plan 2 student loan is not paid off after 30 years it is written off
• Plan 2 remains the only student loan on offer to students from Wales

Tom, aged 28 who works in wealth management, has taken an equally philosophical approach to his £72,000 student debt. He borrowed £52,000 to study business economics and began making repayments in 2020.

His annual salary means that since the beginning of September - when the new rate for the year ahead came into force - he is being charged the highest possible rate of interest of 7.3%.

But Tom said: "Student finance doesn't even come into my consideration."

He is paying about £200 a month on his loan, so in terms of potentially getting a mortgage, he said: "It's not going to move the dial on my affordability." For him, the payments are simply "a tax on having gone to university".

But Adam said it does have an impact, especially if you want to save for a deposit to buy a house.

"I earn over £50,000 so I’m in the higher percentage tax bracket - that’s 40% income tax. There’s then 2% National Insurance on top of that and then essentially 9% which I’m treating as a tax. That’s before pension contributions or anything else,” he said.

"It is that bit harder just to save for a house deposit."

Niamh, a 27-year-old trainee solicitor at a US law firm, wishes she could have done an apprenticeship instead of graduate and postgraduate degrees which have left her with an outstanding student debt of more than £128,000.

"My gripe would be the fact that actually, I could be doing the exact job that I’m doing at the exact firm I’m at through the apprenticeship programme scheme," she said.

"But certainly back then that wasn’t known about."

Niamh said: "Even now, I think the rhetoric around student loans is still 'this is a good loan to have, this is a good thing to do'."

But she thinks there needs to be more transparency about the rates of interest charged on these loans.

Tom Allingham, student money expert at the website Save the Student, said the interest rates on loans shouldn't put people off going to university.

"The repayments will be - broadly speaking - manageable, because you only repay a proportion of your income over a threshold, because it is eventually cancelled over a period of time [and] it doesn't affect your credit score.

"That said, we do think that fundamentally tuition fees should be abolished," he said.

He is not holding his breath, though, for any announcements in the Budget on student finance "just because I think there is going to be so much focus on other things".

A spokesperson for the Department for Education told the BBC: "We are dedicated to creating a sustainable higher education funding system moving forward, in order to break down the barriers to opportunity.

But they added: "It is going to take time to get right."