The government is reviewing options to ease the burden of plan 2 student loans after weeks of pressure over a policy that has pulled more graduates into repayments, the Guardian understands. The Treasury and the Department for Education are examining different measures to offer relief to those in England and Wales who often repay tens of thousands more than the original loan amount.
Labour MPs have lobbied against a freeze on the repayment threshold, which will remain at £29,385 until 2030, potentially increasing annual repayments by up to £300. Sources said reversing the freeze has not been ruled out and could be credited to an improving economy. With the rise in the minimum wage, almost all but the lowest-paid graduates will start repaying immediately, sparking a backlash over what critics call the “mis-selling” of loans.
Questions have also been raised over the use of the Retail Prices Index (RPI) to set interest rates, which the government itself considers to overstate inflation. Graduates can be charged RPI plus 3% depending on earnings, creating an effective marginal tax rate of 51% on earnings over £50,270.
Conservative leader Kemi Badenoch attacked Prime Minister Keir Starmer over the system during PMQs on Wednesday, calling it a “debt trap.” Starmer responded that the Conservatives had “scammed the country” and left a broken system, adding that Labour had already reintroduced maintenance grants and would look at ways to make student loans fairer.
After PMQs, Starmer’s spokesperson said the government is “looking at ways to make it fairer,” though new measures are unlikely to come in next week’s spring statement. Consumer rights expert Martin Lewis, who met Badenoch, called for the threshold to rise with average earnings, telling Good Morning Britain that the current changes “would not have been allowed for a commercial loan” and urging the chancellor to reverse the decision.
