UK minister Lucy Rigby has defended the government's recent changes to student loans, arguing that the heavily subsidised nature of the system gives the government the right to alter repayment terms. Speaking before the Treasury select committee on Wednesday, Rigby rejected accusations of unfairness, stating that student loans are fundamentally different from commercial loans.
Government Defends Right to Alter Loan Terms
Rigby, the chief secretary to the Treasury, told MPs that less than half of young people attend university, and the government must consider fairness to all taxpayers. She emphasised that student loans are not comparable to commercial loans because borrowers typically lack credit history and collateral, and loans can be written off if repayment thresholds are not met.
“Student loans, despite having the name they have, are really very, very different as a product … to a commercial loan. Because they are so heavily subsidised by the government, the government has the right … to change some of those terms of the loan,” Rigby said.
Controversy Over Plan 2 Loans
The debate centres on millions of students from England and Wales who hold “plan 2” loans. Many graduates see their monthly repayments dwarfed by interest, causing their debt to grow. The row was sparked by Chancellor Rachel Reeves’ decision to freeze the salary threshold for plan 2 loan repayments for three years. Above-inflation interest rates on these loans have also drawn criticism.
Consumer campaigner Martin Lewis has argued that changing loan terms “would not be allowed for any commercial lender – it would go against all forms of consumer law.”
Committee Inquiry and Public Response
The Treasury select committee is investigating student loans and graduate taxation. Last week, campaigners told MPs that many graduates feel used as “cash cows” to fund policies like the state pension triple lock. Philip Augar, who led the 2019 government review into post-18 education, compared the situation to mis-selling scandals in car finance and payment protection insurance.
However, Skills Minister Jacqui Smith disagreed, stating, “I think he is wrong … I don’t think this is equivalent to that.”
More than 52,000 people responded to the committee’s call for evidence. Some described student loan interest rates as “extortionate” and “higher than my mortgage,” while others said they were assured repayment thresholds would rise with inflation.
Government Response
A government spokesperson said: “We recognise that some graduates have concerns about the cost of student loan repayments and understand why this is an important issue. We inherited the current system and have taken steps to make it fairer – including raising the repayment threshold for the first time since 2021 and capping maximum interest rates this year to protect graduates from rising costs.”
The spokesperson added that the government has reintroduced targeted maintenance grants and that the system “protects lower-earning graduates,” with repayments linked to income and any outstanding balance written off at the end of the loan term.
