A committee of MPs is launching an inquiry into the student loan system and whether it’s fair for graduates
The investigation will put further pressure on the government to relieve the burden on young people.
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The Treasury Committee, a cross-party group, said it’s responding to people who are “intensely dissatisfied with the terms” of their loans, after the chancellor announced she’ll freeze repayment thresholds from next year.
“This inquiry is about fairness,” said Labour MP and committee chair, Dame Meg Hillier.
“Fundamentally, what we’re asking is: have the goalposts been moved in a way which is unfair to graduates?”
The debate around plan 2 loans – given to young people who went to university between 2012 and 2023 – has intensified since Rachel Reeves’ budget in November last year.
Since then, a growing number of Labour MPs have urged the government to change course, while the Conservatives – to calls of hypocrisy – have said they’d cut the amount of interest owed.
What’s the deal with plan 2 loans?
These loans are especially controversial because of the high interest rates. According to the Institute for Fiscal Studies (IFS), plan 2 students now leave university with more than £50,000 in student loan debt.
A graduate pays back 9% of their monthly earnings when their salary gets above the £28,470 threshold. Typically, interest is then charged at the Retail Price Index (RPI) rate of inflation, plus around 3%. It means that many see their debt increase, despite regular monthly repayments.
Labour will increase the repayment threshold next month and then freeze it for three years. It’s the freeze that many backbenchers and graduates want to see reversed.
One Labour MP who wants the system changed said: “With 10 million people set to have student debt by the next general election, easing the burden for young professionals needs to be made a priority and treated with the urgency it deserves.
“Under the previous government, young people were often the last to feel the benefits and the first to feel the brunt of policy decisions – this government now has the opportunity to break this pattern.”
Another Labour MP, who has a plan 2 loan, told Sky News that Labour MPs are pushing hard behind the scenes for reforms that would be cost-neutral, to save the Treasury from spending any more money.
But will the government act?
A number of organisations have suggested possible options for the Treasury and Department for Education, including lowering the repayment rate from 9% to 6% and extending the loan term from 30 to 39 years.
But, being questioned by the Treasury Committee on Tuesday, Chancellor Rachael Reeves appeared to water down suggestions she could be about to make any quick decisions, while acknowledging the government “inherited a broken system”.
“The truth is, we can’t do everything straight away,” Ms Reeves said.
“I do believe the priorities of investing in the NHS and in defence, but also in the most recent spring forecast to put aside much-needed money for SEND, are the right policies and the right approach.”
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The government has made some changes, like re-introducing means-tested maintenance grants from 2028/2029, and is understood to be “looking at” possible reforms.
The chancellor also said the government will help ease graduate repayments by “bringing down inflation and interest rates”.
But Ms Reeves added: “Any change we make has to be fully costed and fully funded.”
The inquiry by the cross-party group will accept evidence until Tuesday 14 April, and will cover issues of loan interest, how its fixed, and if governments should be able to change the terms once they have been introduced.
Consumer champion Martin Lewis has weighed into the recent debate, arguing that lowering the interest rate will only help graduates who can clear their loans within 30 years, and that the repayment thresholds should be increased to help lower and middle earning graduates.
National Union of Students (NUS) president Amira Campbell said: “This parliamentary inquiry is the clear result of sustained pressure from students and graduates.
“The Treasury Committee is showing the leadership that students, graduates, and young people need from the chancellor, and at NUS we are ready to take this opportunity to work together to fix student loans now.”
