Bridget Phillipson insists changes to student loan repayments would have ‘unintended consequences’ - as she admits taxpayer will foot bill
In the Autumn Budget, the Government announced that the repayment threshold for Plan 2 loans will be frozen at its April 2026 level (£29,385) for three years, instead of increasing with inflation
Bridget Phillipson has told LBC that making changes to student loans repayments would have ‘unintended consequences’ - as the minister conceded that the taxpayer will ultimately foot the bill.
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Ms Phillipson told Nick Ferrari at Breakfast that the government will look at issues around student loans, but added that reforming it doesn't necessarily make "the system fairer" as it's a "really complex system".
The minister's defence of what many see as a lack of action by the government follows the Autumn Budget, where the Government announced that the repayment threshold for Plan 2 loans will be frozen at its April 2026 level (£29,385) for three years, instead of increasing with inflation.
A Plan 2 student loan is for English and Welsh students who started university between September 2012 and July 2023.
Interest rate thresholds, which determine how much interest is added to loans, will be frozen for three years.
From the April after they graduate, borrowers make loan repayments of 9 per cent of their income above a repayment threshold, which is currently £28,470.
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Ms Phillipson told LBC: "The part of the challenge with reforming the student finance system is that whilst it can often seem superficially attractive to do things like changing the interest rate, it doesn't always have the desired effect in terms of making the system fairer, particularly for less well-off students.
"We are going to look at if there's anything that we can do on this. Of course, we keep it open and under review.
"We've increased the threshold for repayment this year. It's then frozen in subsequent years. But I do recognise the pressure that many people who went to university during this period are facing."
She conceded to Nick that "it's not good" that the taxpayer foots the bill when student loans are wiped out after 30 years.
The minister's comments come one day after Martin Lewis "gatecrashed" Good Morning Britain's interview with Conservative leader Kemi Badenoch to talk about student loans.
Mr Lewis walked onto the set during the interview and the two strongly debated the Conservatives’ proposals on how to fix issues with the loan system.
Interest on Plan 2 loans is charged at the rate of RPI (retail prices index) inflation plus up to 3 per cent, depending on how much a graduate earns.
The Conservatives have announced plans to restrict this to RPI only.
Nick Ferrari pushed Ms Phillipson, asking why we can't move from RPI to CPI (consumer prices index).
She said: "That will happen over time anyway because everything is moving towards a measure of CPI.
"But the challenge with this is that the way the interest rate operates means that those who earn more pay back more.
"Higher earners in this system repay more because they've had the benefit of a university education and are earning more.
"So, there can sometimes be unintended consequences and making some of those changes doesn't necessarily make it fairer."