Last year alone, almost £4 million in outstanding loans was written off for borrowers who successfully proved they were unable to work in any capacity double the total recorded four years earlier.
Over the past five years, the amount cancelled under these circumstances has reached £16 million.
Rising Write-Offs
Data from the Student Loans Company shows that in the 2020–21 financial year, 130 graduates had a combined £1.96 million of debt cancelled. By 2024–25, that figure had risen to 158 graduates, with a total of £3.99 million written off.
Graduates can apply to have their loans cancelled if they provide medical evidence confirming they are permanently unfit for work, alongside proof they receive a qualifying disability-related benefit such as Personal Independence Payment or Disability Living Allowance. The Student Loans Company does not record the specific medical grounds or type of disability cited in each case.
Although the sums involved remain small compared with the overall student loan book currently valued at around £260 billion, the upward trend comes at a time of growing debate about the fairness and sustainability of the system.
Mounting Pressure Over Plan 2 Loans
Attention has increasingly focused on so-called Plan 2 loans, which apply to borrowers in England who took out loans between 2012 and July 2023. Under this plan, interest is charged at the Retail Prices Index plus up to 3 per cent.
Chancellor Rachel Reeves announced last year that the government would freeze the repayment salary threshold at £28,470 until 2030. Graduates only begin repaying once they earn above that level.
Critics argue that the current structure allows debt to grow faster than repayments for many borrowers, particularly given that tuition fees tripled from £3,000 to £9,000 in 2012 and now stand at £9,535 per year.
Kemi Badenoch has described the system as a “debt trap” for graduates.
Concerns Over Incentives
Nick Hillman, director of the Higher Education Policy Institute and a former adviser during the creation of the modern student loan framework, has warned against expanding permanent write-offs beyond genuine cases.
He argued that income-contingent loans already contain a built-in safety net: borrowers who never earn above the repayment threshold do not repay, and any remaining balance is eventually written off after a fixed period.
Loans taken out before 2012 are generally written off after 25 years. Those issued between 2012 and July 2023 are cancelled after 30 years, while loans started after August 2023 are written off after 40 years. Different arrangements apply in Scotland and Northern Ireland.
Hillman cautioned that automatically erasing loans for those deemed unlikely to work could risk unintended consequences, potentially creating incentives for a small minority to overstate incapacity. He compared it to the earlier decision to exclude student loans from bankruptcy rules to prevent abuse of the system.
Broader Context
The rise in cancellations comes against a backdrop of increasing claims for health-related benefits. A recent report by the Institute for Fiscal Studies found that around 4 million working-age adults in England and Wales now receive disability or incapacity benefits, up from 2.8 million in 2019.
The think tank noted that more than half of the post-pandemic increase in claims among 16 to 64-year-olds relates to mental health or behavioural conditions. While worsening mental health may explain part of the rise, the IFS said it was unlikely to account for the entire trend.
Disabled Students UK defended the write-off policy, stressing that the number of affected graduates represents a tiny proportion of the more than 900,000 students in higher education each year. A spokesperson said those granted cancellations are required to provide clear evidence that they will never be fit for work, often following life-changing illness or disability.
They added that rising student debt is itself a source of stress, and that maintaining a safety net for those permanently unable to work remains essential.
