More than 20 Labour MPs have united in Parliament, calling for significant reforms to the student loan framework in England. Their concerns centre around what they describe as “unfair” interest rates and a repayment system that disproportionately affects graduates, particularly amid the current cost-of-living crisis.
A Call for Change
During a debate in Westminster Hall, Labour MP Jas Athwal led the charge, advocating for an increase in the salary threshold that triggers loan repayments and a reduction in interest rates. His comments came in the wake of Conservative leader Kemi Badenoch highlighting the issue during Prime Minister’s Questions, referring to student loans as a “debt trap”. In response, Sir Keir Starmer acknowledged the need for government action to make the system fairer.
Currently, the interest rate on loans is determined by the Retail Prices Index (RPI) measure of inflation. For students who commenced their studies in 2023 or later, the interest rate stands at 4.3%. In contrast, those on Plan 2 loans, who started between September 2012 and July 2023, face an interest rate calculated as RPI—currently at 3.8%—plus an additional margin of up to 3%, depending on their earnings.
Rising Concerns Over Debt Levels
The criticism of the student loan system has intensified since the government’s autumn Budget announcement, which included a freeze on the salary threshold for Plan 2 loan repayments set to commence in April 2027. This freeze means that graduates earning above a fixed amount will be compelled to make higher repayments, while others will begin repaying sooner than they would have if thresholds had been adjusted for inflation.
In the debate, Athwal described the existing system as “in urgent need of reform,” asserting that simple adjustments would not suffice. He pointed out that graduates often accrue interest on their loans before they have even completed their studies, with monthly interest payments frequently surpassing the amounts being repaid. Consequently, many graduates find their loan balances increasing despite being employed.
Athwal highlighted the unfairness faced by middle earners, who bear a heavier burden compared to high earners, able to repay their loans more swiftly and accumulate less interest. “A whole generation feels bled dry by a system that just keeps taking from them,” he claimed, questioning the justification for freezing repayment thresholds amid an ongoing cost-of-living crisis.
Personal Stories of Struggle
The debate also featured poignant testimonies from Labour MPs, with Luke Charters, who holds a Plan 2 loan, decrying the system as “a dog’s dinner.” Fellow MP Chris Hinchliff labelled the threshold freeze a “misstep”, urging the government to address the issue before the next general election.
Kate Osborne, representing Jarrow and Gateshead East, revealed that she had received over 700 messages from constituents sharing troubling accounts of their mounting student debt. She described the interest rates as a “scandal and a rip-off”, with some individuals facing debts as high as £60,000, their totals ballooning by tens of thousands while working full-time. Bell Ribeiro-Addy, MP for Clapham and Brixton Hill, went so far as to liken the terms of student loans to those offered by loan sharks.
Osborne and Ribeiro-Addy were among several Labour representatives advocating for the abolition of tuition fees entirely, positing that this would enhance social mobility and broaden access to higher education.
Government Response and Future Outlook
During the Prime Minister’s Questions, Badenoch emphasised that previous administrations had contributed to the rising costs of university education, challenging Starmer on whether he would lower interest rates on student loans. The Prime Minister retorted that his government had inherited a “broken student loans system” and referenced the reintroduction of maintenance grants, which had been scrapped by the Conservatives, as a step towards improving the situation.
In response to the Westminster Hall debate, Education Minister Josh MacAlister reiterated the government’s commitment to reviewing the student loan system. He noted that the repayment threshold for Plan 2 loans would be raised to £29,385 in April—above the average graduate salary. However, he also warned that “enormous pressures on budgets” necessitated the three-year freeze starting in 2027, claiming that the average borrower would see only an additional £8 in monthly repayments as a consequence.
The Conservative party has proposed capping the interest rate on Plan 2 loans at RPI and suggested closing 100,000 university places to redirect funding towards apprenticeships, arguing that some degree programmes leave graduates financially worse off. The Liberal Democrats have called for a reversal of the repayment threshold freeze and a redesign of the interest structure to eliminate the link to RPI inflation. They have also suggested that public sector workers—such as nurses, doctors, and teachers—should receive debt relief after a decade of service.
Why it Matters
The mounting pressure for reform within the student loan system signifies a critical moment for educational policy in the UK. As graduates continue to grapple with escalating debt levels, the implications of these discussions extend beyond individual financial burdens; they touch on broader societal issues such as access to education, economic mobility, and the long-term financial health of an entire generation. The outcome of these debates will ultimately shape the future landscape for students and graduates in the UK.
