The graduate "success tax" is killing aspiration
Last year, I was offered a place on a degree apprenticeship at a top‑tier investment bank. That route would have given me a salary, a free degree, and four years of experience. But like many high‑achieving students, I was told by advisers university was the “proper” path. Apprenticeships, even elite ones, were treated as second‑class. I followed that advice. Now I’m starting to regret it.
As the Treasury prepares to freeze the student loan repayment threshold in real terms until 2030, I realise I didn’t just buy an education. I actually bought an additional lifetime tax rate that would make a millionaire weep.
Chancellor Rachel Reeves shrugs off the student debt crisis. The system is "designed so you don’t pay it back in full," she says. This is an admission of failure. Campaign groups are right to accuse the government of acting like "loan sharks". For students like me, the traditional ladder of aspiration has been ripped apart by a system with all the signs of misselling: complex terms, and rule changes which materially worsen outcomes after the contract is signed.
According to the Institute for Fiscal Studies, repeated tweaks to Plan 2 loan terms mean some graduates now face up to £16,000 more in lifetime repayments than they initially expected. This isn’t a loan. It’s more of a graduate success tax.
By effectively fixing the price of most undergraduate degrees at the £9,535 fee cap, regardless of quality, the government has broken the price signal. A degree in engineering, which is expensive to teach and leads to strong earnings, is priced the same as a low‑value course with weak employment outcomes. Because the state guarantees the same loan regardless of return on investment, universities have no incentive to lower prices or justify the quality of “mickey mouse” courses.
This is what institutional failure looks like. In the rush to meet the arbitrary 50% target for university attendance, we have sacrificed quality for quantity. We have seen a massive expansion in the number of degrees, yet the “graduate premium” has plummeted. We are subsidising a glut of low-value courses which leave students with a debt burden that, under the new Plan 5 rules, will follow them until they are 65.
If you graduate and land a well-paying job, the state rewards your achievements by taking 9p of every extra pound you earn. When you combine that with 20% income tax and 8% National Insurance, a graduate is already losing 37p of every extra pound above the repayment threshold. Because this threshold is frozen while inflation rises, more of our entry-level wages are pulled into the repayment net. This fiscal drag ensures even a modest pay rise actually feels like a pay cut.
Britain’s productivity has stagnated for more than fifteen years. We cannot expect to fix it by taxing the most aspirational young workers at rates which disincentivise seeking a promotion or working an extra hour. While my peers on the left demand the government cancels student debt, I disagree.
That would be sticking a plaster on a wound, never mind the fact that it asks half the population who didn't go to university to pick up the tab for a broken system.
The solution is simple, if there is political will. Universities collect their £9,535 upfront, regardless of whether their graduates succeed. They have little incentive to ensure we aren't wasting our time on a "mickey mouse" course. Young people like me shouldn't need to take on a 40-year debt sentence just to make friends or "find themselves", especially when degree apprenticeships now offer that same community alongside a salary. The higher education sector has grown beyond its means. It must ditch the feel-good attitude and engage in some hard, free-market economics.
We must move to Income Share Agreements (ISAs). Instead of state-backed debt, universities should fund degrees in exchange for a fixed percentage of a student’s future income. If a degree has no market value, no one will invest in it. Universities would finally be forced to ensure their students actually succeed in the real world. This idea isn’t new. Milton Friedman first proposed the concept in 1955.
Secondly, once a graduate has paid back the fees of their tuition (with inflation) the obligation should end. The state should charge no interest on student debt. Crucially, by ending the subsidy for unproductive degrees, the Treasury would save more than enough to offset the cost of removing the interest burden from the most productive graduates.
My decision to choose university over a degree apprenticeship is starting to look like a mistake. I traded four years of zero debt for the privilege of extra tax later.
The government should replace the bureaucratic Apprenticeship Levy with Training Vouchers given directly to young people. Let students choose where to take their funding – to a university or an employer, so that more people can have the choice I did, and feel confident foregoing a traditional degree. Doing this, as the OECD suggests, would boost individual choice and force universities to compete with the private sector. This turns apprenticeships into a viable market competitor rather than a risky alternative, as I was led to believe.
The system is fundamentally broken, but the solution is not the sweeping debt wipeout my peers usually advocate for. It is time to stop tinkering and start fixing fiscal incentives. If we want a productive generation, we must stop subsidising institutional failure and start letting the market decide what an education is actually worth.
Samiksha Bhattacharjee is the Head of LOLA UK and the President of the University College London Libertarian Society. She is a Young Voices UK contributor, and you can find more of her work at Samiksha’s State of the Debate.
