MPs to probe 'unfair' student loan repayments after graduate outcry

The Treasury Committee is asking young people for their views on matters such as whether they would still take out loans today and how their student loan repayments are impacting their finances.

Committee chairwoman and Labour MP for Hackney South and Shoreditch, Dame Meg Hillier, admitted loan interest rates “have clearly led to widespread dissatisfaction among graduates who may not have fully understood their repayment terms and the possibility they could change”.

Students now leave university with more than £50,000 in student loan debt, according to the Institute for Fiscal Studies.

From the April after they graduate, borrowers make loan repayments of 9% of their earnings above £28,470. 

In her Autumn Budget, the Chancellor announced this threshold would be frozen for three years from April 2027.

Read more: Ministers could announce student loan U-turn as early as next week

Read more: Martin Lewis urges Chancellor Rachel Reeves to reverse student loans decision

Speaking on Reeves' decision, money expert Martin Lewis wrote: "This is deliberate ‘fiscal drag’, the stealthy way governments are increasing the tax-take while keeping the electoral promise of ‘not increasing income tax rates’.

"With student loans effectively acting as an additional marginal tax, it means that 9% extra above the £28,470/yr threshold has a harder impact."

Because tax thresholds have been frozen while wages have risen with inflation, students are paying more tax and some graduates are reaching the 40% band earlier in their careers.

Dame Hillier added: “This inquiry is about fairness. Fundamentally, what we’re asking is, have the goalposts been moved in a way which is unfair to graduates?”.

Evidence must be submitted to the committee by April 14. There is also a survey for young people to contribute their experience directly.

Questions will include whether the interest on loans should be fixed to the Retail Prices Index (RPI), Consumer Prices Index (CPI), or another measure, and whether the terms of a loan should be able to be changed.

“It’s critical that the model for financing university education is sustainable but there are questions over whether decisions such as freezing the threshold for repayments is placing the burden unfairly on younger people,” Dame Meg added.

In her Autumn Budget, the Chancellor announced the Plan 2 loan repayment threshold will be frozen at £29,385 for three years, leading to many having to pay more.

Plan 2 loans were issued to English students who started their undergraduate courses between 2012/13 and 2022/23.

The system has been repeatedly criticised recently, including by many Labour MPs, Conservative leader Kemi Badenoch, as well as Martin Lewis.

Lewis added lowering the interest rate will only help graduates who can clear their loans within 30 years, and that the repayment threshold needs to be increased to help lower and middle earning graduates.

Interest on Plan 2 loans is charged at the rate of RPI inflation plus up to 3%, depending on how much a graduate earns.

The Conservatives have announced plans to restrict this to RPI only.

Prime Minister Sir Keir Starmer has said the Government will look at ways to make the student loan system fairer.