Student loans show that hard policy choices will only get harder

Opinion UK universitiesStudent loans show that hard policy choices will only get harderThe debate over university funding is a good example of the intractable challenges facing the UK governmentMartin WolfAdd to myFTGet instant alerts for this topicManage your delivery channels hereRemove from myFTGraduation day at the University of Birmingham. Change in the nature of economies and individual aspirations has made a huge expansion in tertiary education inevitable © Andrew Fox/AlamyStudent loans show that hard policy choices will only get harder on x (opens in a new window)Student loans show that hard policy choices will only get harder on facebook (opens in a new window)Student loans show that hard policy choices will only get harder on linkedin (opens in a new window)Student loans show that hard policy choices will only get harder on whatsapp (opens in a new window) Save Student loans show that hard policy choices will only get harder on x (opens in a new window)Student loans show that hard policy choices will only get harder on facebook (opens in a new window)Student loans show that hard policy choices will only get harder on linkedin (opens in a new window)Student loans show that hard policy choices will only get harder on whatsapp (opens in a new window) Save Martin WolfPublishedFebruary 16 2026Jump to comments sectionPrint this pageUnlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Like many other countries, the UK confronts insoluble long-term challenges: it has inescapable obligations that impose painful trade-offs. Given its ageing population and a slow-growing economy, all this can only get harder.For a taste of such challenges, look at the vexed debate over student loans. The Institute for Fiscal Studies captures it as follows: “On average, students now leave university with just over £50,000 in student loan debt. Repayments are income-contingent: many graduates will repay little or nothing, while others repay 9 per cent of their income above a threshold for decades, often watching the outstanding balance rise. That design has led some to argue the system is unfair and to argue that students were mis-sold loans whose terms have shifted over time.”This controversial outcome is the result of an imperfect effort to solve an extraordinarily difficult set of problems, namely, how to finance the expansion of tertiary education in the UK in a fair and fiscally manageable way, while preserving the institutional independence and academic excellence that had made it highly regarded.In a speech delivered in 2022, Nick Hillman of the Higher Education Policy Institute noted that “there were just 85,000 full-time students in the UK at the start of the 1950s — compared to 2.2mn today.” Thus, the UK has widened educational opportunity enormously, especially for women, who have outcompeted men. Moreover, according to Times Higher Education, the UK now has six of the world’s 50 top universities, with Oxford, Cambridge and Imperial in the top 10. France, for example, only has one and Germany has three in the top 50. Thus, the UK has sustained its relative excellence. Its university sector is also a huge export industry, with 686,000 foreign students in 2024/25. In all, this is a triumph.The change in the nature of both economies and individual aspirations made a huge expansion in tertiary education inevitable. When I went to university only 5 per cent of my generation did so. This was, quite rightly, judged wasteful. But the huge expansion also created big dilemmas. How was it to be financed? How should the huge increase in costs be shared between the students and society? How well could standards of teaching and research be sustained? How far, too, could the treasured independence of academic institutions be protected?I was involved in the debates of the early 2000s on how the sector was to be financed. I argued in line with the emerging policy of the Blair government for higher fees and income-contingent loans, which were enacted in the controversial Higher Education Act of 2004.I remain convinced that this was the best strategy. It was politically impossible to obtain the needed resources from the general taxpayer alone. It was also wrong to do so, since, on balance, graduates were better off as a result of their university education. Moreover, I argued, universities would be more independent if they could charge fees directly. Finally, a system of income-contingent repayment would provide both resources and needed insurance for those who turned out to be less economically successful.All this remains, in my view, correct. But, as always, the devil is in the (evolution of) the details. At first, fees (and loans) were capped at £3,000 a year, which was clearly too low. Under the coalition government, fees jumped to a ceiling of £9,000, while the government’s direct support for university teaching was eliminated. One justification for this was the absurd accounting convention (subsequently changed) that the certainty of future loan writedowns would not be recognised. This allowed the government to record a huge notional saving on public spending by shifting from direct spending to loans.Subsequent tweaks have included lengthening the period before loans are written off, higher interest rates and, more recently, freezing of nominal values of thresholds for loan payments. Debtors rightly complain that it is unfair for government to increase the costs of their debts, at will. Meanwhile, fee income lags behind costs of teaching home students, which means that universities cross-subsidise expensive courses (such as science and medicine) from fees on lower-cost courses (such as humanities).Here then is a successful sector that depends on government. But the latter attempts to evade the costs by shifting burdens from taxes. This creates unpredictability and inescapable unfairness. Is this the best we can do? In most ways yes. But the state must provide more direct support for teaching.martin.wolf@ft.com Follow Martin Wolf with myFT and on TwitterReuse this content (opens in new window) CommentsJump to comments sectionPromoted Content Follow the topics in this article Martin Wolf Add to myFT UK politics Add to myFT UK universities Add to myFT Student loans Add to myFT Comments