New Education Secretary Lucy Powell has said she will examine the student loans system, which she described as 'egregious', amid complaints that high interest rates make it difficult for younger graduates to repay their debts.
Review of student finance
Ms Powell, who previously criticised the system, has backed a review of what university students pay, stating it is 'top of my in-tray'. The so-called Plan 2 loans have sparked outrage as some graduates face growing debts despite years of repayments due to inflation.
Interest rates and thresholds
Interest on Plan 2 loans, taken out between September 1 2012 and July 31 2023 in England, is charged at the Retail Prices Index (RPI) plus up to three percent extra depending on income. Repayments start when graduates earn £29,385. 'I've called it in the past egregious. And I'm not going to sort of change my opinion on that just because I'm now the secretary of state,' Ms Powell told BBC Radio 5 Live. 'The Government has committed to a review of that.' She added it is a 'cost-of-living issue' as many on Plan 2 pay high repayments without ever paying off the capital. Asked if she would deal with it, she said: 'I can't make any promises, but, you know, it needs looking at.'
Previous budget decisions
At the last budget, then-chancellor Rachel Reeves froze the repayment threshold at £29,385 for three years from 2027, leaving graduates worse off. Previously, thresholds were meant to rise with inflation but have been frozen several times since 2016. In response to criticism, then-Prime Minister Sir Keir Starmer capped the interest rate for Plan 2 loans at six percent from September.
University attendance and technical training
Sir Keir scrapped the target for half of school leavers to attend university, aiming instead for more apprenticeships. Ms Powell said it 'has not been realised in a way'. She commented as Andy Burnham unveiled education reforms to boost technical training for 14-year-olds on equal footing with academic paths. 'We don't want fewer people going to university,' Ms Powell said. 'This is not about dumbing down.' She wants a 'more inclusive education system' with pathways into employment, further education, and technical training. Earlier this year, Conservative leader Kemi Badenoch proposed capping Plan 2 interest at RPI only, currently three percent.
