Martin: 'The current statement is misleading'

Martin Lewis, founder of MoneySavingExpert.com, said: "The student loan statement is misleading and dangerous. For most university leavers, their outstanding 'debt' is one of the least important figures, yet the statement only lists this and the interest added, panicking many into poor decisions that cost some £1,000s.

"In practice, university leavers repay 9% of everything earned above £25,000 for 30 years, unless they clear the debt before that. So whether you owe £10,000, £50,000 or £3 million, if you earn £30,000, you repay £450 a year. The only impact the 'debt's' size has is whether you'll clear what you owe before it wipes.

"And it's predicted that 83% of university leavers will keep paying for the full 30 years. Therefore, for most these loans work more like 9% extra tax than a debt. I'm not saying it's cheap, just that this is the practical financial reality – in fact, it's how most mortgage lenders and others assess these loans.

"I've long said the system should be renamed 'graduate contribution', a more accurate description, and our new statement shows this reality. The excessive focus on the language of 'debt' has disastrous consequences. It both inures young people to other, more dangerous borrowing and can mis-prioritise their finances.

"One woman told me her fear of the growing interest on her statement meant she used an inheritance to overpay thousands. Yet she was in a low-earning profession, with little likelihood of clearing much of the debt. Her overpayments were unlikely to have any impact on her future repayments, so she had effectively flushed her inheritance down the loo. If we are going to tell our youth that they're in debt, we must also educate them on what that actually means."

