Ministers have today admitted that a third of students, who have started university since fees were introduced in 1998, aren’t earning enough to start repayments.

The current annual salary required for repayments to be made stands at £15,000; and figures show that nearly 400,000 are not meeting the threshold, some up to seven years after graduating. With the rate of inflation currently at 4.8%, it looks as if the days of cheap loans for student fees are long gone.

Wes Streeting, president of the National Union of Students, said that the 4.8% added to loans to account for inflation had made a “myth” of the promise of cheap loans for students.

Of the 1,237,300 with money still outstanding on their student loans, 384,300 had not begun payments at all. Official figures show that graduates earn up £100,000 more in the course of a lifetime, but the financial return on the £20,000 debt that most students graduate with, is very slow to fabricate.

One graduate, who managed to pay off £650 of her £12,000 debt last year, claimed that after the rate of inflation was added, she had only managed to return £70 of her original loan.

Stephen Williams, the Liberal Democrat spokesperson for universities said: “As the financial crisis worsens the burden on new graduates is going to be even greater.”

Ministers now fear that graduates will have a tough task trying to find work, with the credit crunch forcing firms to cut down on recruitment.