In a recent interview, Education Secretary Bridget Phillipson has stood by the government’s decision to freeze the repayment threshold for Plan 2 student loans in England. This move, which is expected to result in an average increase of £8 per month in repayments for graduates, has sparked debate and concern among former students about its potential impact on their financial wellbeing.
Changes to Student Loan Repayment Threshold
Phillipson confirmed during her appearance on BBC Breakfast that the repayment threshold for Plan 2 loans will rise as scheduled in April, from £28,470 to £29,385. However, this increase will be followed by a three-year freeze, meaning it will not rise in line with inflation. The Secretary acknowledged the challenges facing the education sector but maintained that the government is working within its limitations.
The freeze has drawn criticism from graduates, some of whom have reported that their student loan repayments, which are tied to their income, have forced them to reconsider their work hours and overall earnings. One graduate, Tinuke Bamiro, 24, shared her experience of how her income from consulting and social media has pushed her into the higher-rate tax band. As a result, she faces substantial deductions: paying 40p in tax for every pound earned over £50,271, as well as 9p for every pound over the current repayment threshold.
Growing Discontent Among Graduates
Bamiro expressed frustration about the burden of her repayments, stating, “The amount that I have to repay, especially on the income I make outside of my nine to five, is a lot.” She emphasised her desire to save for a property deposit rather than diverting funds into her pension. Having borrowed approximately £75,000 for her degree at Brunel University, she now owes nearly £90,000, a situation exacerbated by the remote learning conditions during the pandemic, which left her feeling that her education was undervalued.
The government’s rationale for the freeze has been described as a “tough but fair” decision. However, campaigners have urged the Chancellor to reconsider, arguing that the current repayment structure places undue strain on graduates, especially amid the rising cost of living.
Legislative Responses and Reform Proposals
The issues surrounding Plan 2 loans have prompted calls for legislative reform. The Liberal Democrats have proposed a comprehensive overhaul of the student finance system, aiming to alleviate the financial burden on graduates. Their proposal includes writing off a portion of student debt for public sector workers—such as nurses and teachers—after a decade of service.
Meanwhile, the Conservative Party has suggested capping the interest rates on Plan 2 loans at the Retail Price Index (RPI), although this would not provide any immediate relief for existing borrowers. Shadow Education Secretary Laura Trott indicated that while the change would not apply retroactively, it aims to ensure future interest rates align solely with inflation.
The Financial Landscape for Graduates
George Holmes, 27, who has reduced his work hours to four days a week to mitigate his financial pressures, has joined the Rethink Repayment campaign. He highlighted the lengths graduates are going to in order to manage their finances, saying many are calculating whether promotions and additional stress are worth the potential financial rewards.
Holmes noted, “Some people are trying to get around that through things like salary sacrifice or reducing hours.” This shift in priorities reflects a broader trend where graduates are increasingly reassessing their work-life balance in the face of rising costs and financial obligations.
Why it Matters
The freeze on student loan repayment thresholds raises significant questions about the sustainability of the current education financing model in England. As graduates grapple with increasing costs of living and the burden of student debt, the government’s approach could have long-lasting implications for their financial futures. With calls for reform gaining momentum, it is clear that the conversation around student loans is far from over, and how policymakers respond will be critical in shaping the educational landscape and the lives of countless graduates.
