The government is examining ways to ease the burden of 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 reviewing options to offer relief for those with plan 2 student loans, which often leave graduates in England and Wales paying tens of thousands more than the original loan amount.
Labour MPs have lobbied the government to reconsider a freeze on the student loan repayment threshold, which will remain at £29,385 for three years until 2030, likely causing graduate repayments to rise by up to £300 a year. Sources said reversing the freeze had not been ruled out and could be attributed to an improving economy. Given the rise in the minimum wage, almost all but the very lowest paid graduates will start repaying their loans immediately.
The rethink comes after a backlash over the perceived mis-selling of loans, with graduates expecting to only repay when earning significantly higher salaries. Questions have also been raised about the use of the RPI measure of inflation, which the government itself considers to overstate inflation, to increase loan balances. Graduates can be charged RPI inflation plus 3% on a loan, resulting in an effective marginal tax rate of 51% on earnings over £50,270.
Conservative leader Kemi Badenoch attacked Prime Minister Keir Starmer over the student loans system during Prime Minister’s Questions, even though it was introduced by the Conservatives. Starmer responded that the Conservatives “scammed the country” and inherited a broken system, adding that the government would look at ways to make it fairer. His spokesperson later said any new measures were unlikely to come in next week’s spring statement but that the Department for Education was keeping the situation under review.
Consumer rights expert Martin Lewis joined the debate, calling the loan term changes a breach of contract and urging Chancellor Rachel Reeves to reverse the threshold freeze. A number of Labour MPs also spoke in a Westminster Hall debate, describing their own experiences of student debt and calling for significant reform, with MP Luke Charters describing the system as a “dogs’ dinner”.
