The real problem of graduate debt is not the numbers, it’s the psychological impact of them.
Currently in the UK, graduates are looking at shouldering an average of £47,900 of student debt upon graduation.
This is, of course, already high, but on top of this is the interest on these loans.
Under Plan 2, for example, interest rates currently sit between 4.1% to 7.1% depending on salary thresholds. The more you earn, the higher the rate of interest.
In fact, you’d need to earn £66,000 per year in order for the repayments to balance the rate of interest at the top end. This means that student loans increase over time even if students are paying back hefty contributions each month.
Obviously, this sounds unfair, unpleasant, unjust, all of these things. Indeed, it is terrible.
But what is overlooked is what debt and growing interest does to the aspirational mind of the young. This is not just a number. It is a felt reality.
I generally try not to use personal examples too much in public posts but here I am reminded of my own story.
I went to university in 2000.
I did my undergrad, accrued some student debt, and then after four torturous years being bored half to death in corporate London, I went back to university and completed an MSc in politics in the hope that I could enter something more meaningful.
This brought my debts to £42,000.
When I was 26 I could afford to pay £100/month off this number after living expenses.
Psychologically this meant that:
a)I struggled to think about my future because all my decisions were based on the (powerlessness of) NOW.
b) Buying a house was a distant joke I heard other people talk about but I never for one second thought I would own my own home. I was in flat shares with multiple people throughout my twenties.
c) I was generally not particularly successful or expressive of my passions in my early career because I really had one option when it came to job hunting and that was to take absolutely anything that would pay me an income.
I trudged on job to job, day to night. I had the psychology of: one-month-at-a-time.
This is not an aspirational mind. It is a scarcity mind.
Then one day when I was 28, I got overpaid for three whole years. I became a private tutor using my expensive education.
With my new found money, I was able to clear my debts, buy a small flat with mortgage and create savings.
What followed was an incredible surge of talent, passion, innovation, energy, personal excellence and triumph.
The cost of debt is not just about the economic numbers. It’s the broader economic cost of limiting the creative and professional potential of the people who should be shining.
So I ask you:
- What is the psychological climate of graduates today?
- What is the cost to the economy of strangling the aspirations of our graduates under university debt?
Think of Maslow’s Pyramid: physical safety trumps the lot.
