The merits of student loan forgiveness and pension changes for resident doctors

In May, the government announced 2025–26 pay awards for many public sector employees, including resident doctors (previously known as junior doctors) in England. Resident doctors received a 4% increase to their pay scales, as well as a permanent £750 top-up. However, the British Medical Association has argued that the increase is insufficient and has recently announced strikes starting on 25 July. In response, the government is reportedlyconsidering a number of changes to ‘non-pay elements’. In this comment we briefly discuss the potential merits of two of the changes apparently being considered: student loan debt forgiveness and changing the balance between pensions and current pay. As there is little detail about what the government may be considering, we focus on the broad impacts of potential changes in these areas.

Reforms to student loans

In recent years, the idea of forgiving student loans for NHS staff has been raised repeatedly in policy debates. The Royal College of Nurses, for example, has frequentlycalled for student loans to be written off for nurses working in the public sector. One proposed scheme would involve writing off 30% of a graduate’s loan balance after 3 years in service, 70% after 7 years and 100% after 10 years. Several potential reforms to student loans for doctors have been suggested in recent media coverage, including forgiving some portion of their student loan, or reducing the rate at which interest accrues on loans during study. Either of these would reduce student loan balances (although the latter would only do so for current doctors if it were applied retrospectively).

The amount that graduates repay each month reflects their income, with repayments made at 9% from income above a threshold. As long as they have some outstanding debt, an individual’s monthly repayments do not depend on the value of their outstanding debt. That means that, unlike increases in pay – which immediately boost take-home pay – the touted student loan reforms would not boost many doctors’ pay packets for years. The only way for loan forgiveness to affect repayments immediately would be if the full value of their loans were written off, which does not appear to be under consideration. 

The loan reforms that have been suggested would make some doctors no better off. Unlike pay rises, they would not benefit any doctors working in the NHS who do not have an outstanding English student loan (in 2021, around 30% of resident doctors had trained abroad). Even amongst those with such loans, those who go on to earn less in the future – for instance if they take a career break, work part-time or leave the profession – can already expect to have some outstanding loan balance forgiven when they stop making repayments (typically after 30 or 40 years). For such individuals, the suggested loan reforms may have no impact on their loan repayments at all (although correspondingly, this would also be at no cost to the government). 

For most doctors, these reforms would be expected to reduce the length of time that they would make student loan repayments, and hence the total amount they would repay over their lifetimes. For many resident doctors, this will mean making fewer repayments (and having higher take-home pay) at a point in their careers when they will have become consultants and will already be more well-remunerated.

Of course, it may be that doctors are motivated by the value of their loan balances over and above the impacts that this may have on their (current or future) take-home pay. There might be a symbolic element to the policy, one which doctors appreciate even if they don’t stand to benefit for many years, if at all. In that case, it could conceivably be a cost-effective way of improving doctor recruitment and retention. It seems more likely, however, that it would be more impactful to channel the equivalent amount of taxpayer support into increases in current pay, rather than student loan forgiveness. 

The cost of any student loan reforms to the government would depend on the precise details, and crucially on which loans are in scope. If reforms were to benefit current resident doctors, and not only current and prospective medical students, they would need to be applied retrospectively to existing loans. They would also be likely to lead to further calls for similar treatment from other groups of public sector workers, such as nurses and teachers. A more widely-applied reform could be much more expensive, given that the public sector accounts for nearly a fifth of the total workforce, and a higher share amongst graduates. It would also add yet more complexity to a student finance system which is already poorly understood.

One potential appeal for the government of student loan changes over current pay is that they have a different impact on the public finances. Higher current pay for NHS staff would need to be met from departmental budgets for day-to-day spending. In contrast, any changes that would materially reduce the expected value of future loan repayments from existing loans would be reflected as capital spending (as transfers to the borrower). The government’s ‘stability rule’ treats day-to-day and capital spending differently (it allows borrowing for capital spending but not current spending), making it easier to increase capital spending. There would be a separate effect on the government’s other fiscal rule, which requires debt (as measured by Public Sector Net Financial Liabilities, PSNFL) to be falling as a share of national income in 2029–30. By changing the value of the stock of student loans (which counts as a financial asset on the government’s balance sheet), loan forgiveness would increase the level of PSNFL when announced, although will have less impact on the government’s ability to meet its fiscal rules, which targets forecast future changes in PSNFL (alongside the forecast current budget).

Reforms to pensions

Another commonly suggested reform is to change the balance between pensions and take-home pay. Doctors, in common with most other public sector employees, receive a large proportion of their remuneration in the form of pension promises, which are much more generous than the pension contributions typically made by private sector employers. However, these pensions are relatively inflexible: doctors must either contribute a required share of their earnings to receive the benefits, or opt out of the scheme entirely. 

To be specific, in the NHS pension scheme the employer contribution rate is currently 23.7% of pensionable pay, with resident doctors also having to make a contribution of between 9.8% and 12.5%, depending on their salary. In other words, around a quarter of resident doctors’ remuneration is in the form of pension contributions – and arguably the true value of these contributions is even higher.1 Employees in the private sector receive a much lower share of remuneration in the form of pension contributions – and therefore receive a higher share in the form of take-home pay. For example, among private sector employees earning between £50,000 and £70,000 and saving in a workplace pension, the average total (employee + employer) contribution rate is 11% of pay.2

International evidence suggests that generous pensions are not necessarily the most effective way of recruiting, motivating and retaining public sector staff, supporting the idea of rebalancing doctors’ (and other public sector workers’) pay packages away from pensions and towards take-home pay. This change could be implemented in such a way to be fiscally neutral in the long run, although it would involve higher government spending in the near term (offset by lower pension payments further in the future). 

One way to implement this would be to reduce employee pension contributions in the NHS – or indeed in the public sector more widely – in exchange for a decrease in the resulting generosity of those pensions that was carefully designed to be of equal value. This could make the public sector pay package more attractive at no long-run fiscal cost for the government. It could also reduce the number of resident doctors who choose to opt out of the NHS pension scheme as they cannot afford to make the employee pension contribution, and who therefore miss out on a large part of their pay package – the employer pension contribution. 13% of NHS staff eligible for the NHS pension scheme had opted out of the scheme in the latest data (excluding bank staff), and an increasing share of resident doctors are opting out. An alternative option is to make the government’s pension offer, and corresponding employer pension contribution, less generous in return for higher advertised pay.  

Conclusion

The government is reportedly considering various ways to change resident doctor compensation, including changes to student loans and pensions. In this comment we have outlined some potential implications of such changes. 

For student loans, plausible changes would not affect the take-home pay of resident doctors at the beginning of their careers, and some doctors would never benefit financially. While doctors may place value on having a lower loan balance over and above any impacts on their actual take-home pay, this would have to be substantial for doctors to prefer loan changes to increases in their current pay. It would also make an already complex student loan system even harder to understand.

On the other hand, rebalancing pay packages away from pensions and towards take-home pay today has much to commend it. Public sector pensions are much more generous than those typically offered by private sector employers, with little evidence that they are effective in improving recruitment and retention. Reducing employee pension contributions – and thereby increasing take-home pay – for resident doctors who are members of the plan, in exchange for a matching decrease in pension generosity, could make the NHS pay package more attractive at no long-run fiscal cost for the government. It should also help reduce the number of staff who are opting out of their pension. The pay-as-you-go nature of these arrangements means it would, however, lead to increased government spending in the short to medium term.

If the government does make changes to student loans or pensions for resident doctors, it is highly likely that there would be considerable pressure to expand these to cover larger groups of public sector staff, such as nurses or teachers. This will make the impacts of changes – whether positive or negative – much bigger. Moreover, these changes are likely to interact with the public finances in relatively complex ways, changing not just day-to-day spending but also capital spending, spending years into the future, and potentially the value of financial assets on the government balance sheet. That might make some changes more attractive when it comes to the letter of the fiscal rules, but that should not be the primary motivation behind changes to the structure of public sector remuneration.