Lucy Powell, the newly appointed Education Secretary, has described the student loan interest rate as “egregious” and said it “needs looking at”. Powell, a longstanding critic of the system before taking office, has now backed a review of how much students are required to repay.
Interest rate details
Graduates who took out a student loan between September 2012 and July 2023 pay back 9% of everything they earn over £29,385. Government data forecasts that only 55% of full-time undergraduates starting in 2025/26 will repay their loans in full.
Speaking to BBC Radio 5 Live, Powell described the fees as a cost-of-living issue. She said: “I think it’s not just about the threshold of when people start to pay it back, but also the interest rate, which is … RPI plus 3%, which is, you know, I think 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.”
Review commitment
Powell added: “So, look, the Government has committed to a review of that. It is … very much at the top of my in-tray as the secretary of state. And, you know, I want to make sure that we look at this so that it’s fair for students. And it’s a real cost-of-living issue for young people because there’s about a 10-year sort of timeframe for people on this plan two as well. So, they’re paying high repayments and never, ever paying off the capital of their student loan.”
Former Chancellor Rachel Reeves was previously criticised by the influential Commons Treasury committee for announcing a three-year threshold freeze in last year's Budget. This threshold will now be frozen from 2027 until 2030, instead of being uprated annually in line with earnings as was promised when Plan 2 loans were first announced in 2010.
Asked whether she would deal with that, Powell said: “I can’t make any promises, but, you know, it needs looking at.”
Reactions and research
The National Union of Students previously branded the Government a “loan shark”, with students “mis-sold mortgage-sized debts that politicians can raise repayments on at the drop of a hat”.
Last week this newspaper revealed half of graduates who took out a student loan would not do so if they had their time again. Research by Obsurvant found only half felt properly informed when they chose to go, while just 54% felt their time at university had prepared them for big financial decisions.
