Millions of pounds of student loan debt has been written off for graduates registered as unfit to work.
Graduates deemed unable to work did not repay £4 million of student loans last year — double the amount four years earlier.
In total, £16 million of loans have been cancelled in the past five years for those proving they are not fit to work in any capacity, according to figures from the Student Loans Company (SLC).
They can do so by submitting medical evidence such as a letter from a doctor saying that the graduate is permanently unfit for employment and proof of a disability related benefit such as disability living allowance or personal independence payment (PIP). The SLC does not record the grounds for claiming or the type of disability.
An imminent U-turn is expected on Plan 2 student loans after a groundswell of anger over the salary threshold and interest rates, which have seen graduates’ debt growing by more than their repayments.
Rachel Reeves announced last year that the government would freeze until 2030 the salary threshold at which graduates start repaying their loans at £28,470. Interest on the tuition and maintenance loans under Plan 2, which includes borrowers in England who took out a loan from 2012 to July 2023, is charged at RPI plus up to 3 per cent.
Kemi Badenoch has described the system as a “debt trap” for graduates.
Rachel Reeves is to freeze until 2030 the salary threshold at which graduates start repaying loans at £28,470
SIMON DAWSON/NO 10 DOWNING STREET
Figures shared with The Times show an increasing amount is being written off for those proving they are permanently unfit for work.
SLC data shows 130 graduates had £1.96 million of loans cancelled in 2020-21. This increased to 158 graduates in 2024-25 who owed a total of £3.99 million. Over the past five years, loans worth a total of £16 million have been written off.
• Student loans chair to be paid £59,000 a year for 96 days’ work
This amount is likely to soar as more graduates repay higher tuition fees, which tripled from £3,000 to £9,000 a year in 2012 and now stand at £9,535. Some graduates are seeing their debt grow faster than they can repay it. Interest is charged from the day the loan is taken.
While the amount of written-off loans is only a tiny proportion of the overall student loan liabilities — valued at £260 billion — it is expected to continue to rise.
• Two thirds of graduates aren’t even paying off loan interest
Nick Hillman, director of the Higher Education Policy Institute and one of the architects of the student loan system when advising David Willetts, the universities minister at the time, has endorsed a Sunday Times Money campaign to cut the rate of interest on loans.
He warned against permanently writing off the ability of graduates to work, as a safety net already exists as they will not have to repay the loan if they never earn above the threshold.
“Erasing the loans of people deemed much less likely to repay sounds at first glance like a very tricky idea, at least if you think of student loans as operating like a form of income tax,” Hillman said.
“For example, it could incentivise a small minority of people to exaggerate their inability to work and even send a signal that some people’s right to work should be written off at the very start of their working lives, even though work and medical care is constantly changing.
“It reminds me of how student loans had to be ruled out of scope for bankruptcy because there was an incentive to declare oneself bankrupt.
“That might sound unsympathetic but the whole point of income-contingent loans with a time-specific write-off is you don’t need to worry about them if you are genuinely unable to pay them off.”
SLC figures show 9.63 million people have student loans, including 6.2 million who are repaying the money and 2 million who have loans but are either still in education or have not yet hit the repayment threshold.
Loans that started before 2012 are usually written off after 25 years, those that started between 2012 and July 2023 are written off after 30 years, those that began after August 2023 are written off after 40 years. Different rules apply to plans in Scotland and Northern Ireland.
There has been a significant rise in the number of adults receiving health-related benefits. In a report last year the Institute for Fiscal Studies, a think tank, said 4 million working-age adults claim disability or incapacity benefits in England and Wales, up from 2.8 million in 2019.
It added: “More than half of the rise in 16 to 64-year-olds claiming disability benefits since the pandemic is due to more claims relating to mental health or behavioural conditions, 44 per cent of all claimants.
“Worsening mental health can help explain the rise in disability benefit claims, but the nature of the trend — a consistent rise — suggests it is unlikely to be the sole explanation for observed disability benefit trends, which were relatively stable before rising rapidly post-pandemic.”
A spokeswoman for Disabled Students UK said: “The number of graduates having their debt written off represents a tiny fraction of the more than 900,000 graduates within higher education annually. These graduates are required to provide evidence that they will never be fit for work, having likely experienced life changing events or ill health to be in that category.
“Growing student debt is an increasing stressor on graduates and so it is vital that graduates that will never be fit to work have a safety net.”