Ministers could announce student loan U-turn as early as next week
It comes after Rachel Reeves admitted the system is 'broken'
Ministers could announce plans to reduce the student loan burden on graduates as early as next week after Sir Keir Starmer promised to look into ways to make the system “fairer.”
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The Government has faced a wave of backlash over Plan 2 student repayments in recent months, with young people arguing they have been changed retrospectively and effectively function as a lifelong graduate tax.
The Treasury could announce a change in the system as early as next week, when Chancellor Rachel Reeves will give her Spring Statement.
Among the potential changes are a move to increase the threshold for loan repayments or cut the interest rates that have seen loans rise at what graduates argue is an unfair rate, the Times reports.
“Plan two” graduates currently pay almost 10 per cent of their salary above the £28,470 threshold every year with an interest of more than 6 per cent.
This means many graduates end up with higher debt than they had when leaving university, despite paying into their loan for several years.
These reports come after Rachel Reeves told LBC the student loans system is “broken” less than a month after defending it.
“I think it’s absolutely broken. The previous government lost control of inflation and because they lost control of inflation, payments went through the roof," the Chancellor told LBC on Wednesday.
But just last month, she defended the system as "fair" - despite mounting fury at graduates' debt interest spiralling.
In January, Ms Reeves insisted that the whole point of the student loans system, which was changed by the Conservative-Lib Dem government in 2012, was that the more you earn, the more you pay
5.8 million people who took out a student loan between 2012 and July 2023 are on a Plan 2 repayment plan, which sees interest at RPI inflation - plus up to three per centage points depending on earnings.
In contrast, people with loans on ‘Plan 1’ before 2012, pay interest at RPI or the Bank Rate plus one percentage point - whichever is lower.
Tuition fees were tripled to around £9,000 at around the same time, meaning most students were forced to take out big loans to fund their higher education - unless they could afford to pay upfront.
Last month, the House of Commons Library data revealed more than £15bn in interest was added to the total amount of student debt owed in 2024-25. Only £5bn was repaid.
The total amount of student debt owed to the government has soared to £270billion, according to government figures.
The government estimates that just half of students will pay back their loans in full, as it's written off after 30 years.
Nadia Whittome, the Labour MP for Nottingham East has shared online: “I left university in 2019 with £49,600 of debt. A few months later, I became an MP and have since received a salary that puts me in the top 5% in the country.
“Six years on, the repayments from my salary have brought this total down to £48,600 - just £1,000 less.
“An entire generation has been saddled with enormous debt and hefty repayments, while they struggle with stagnant pay and soaring rents, making it nigh on impossible to save.
"It is deeply unfair. We should be scrapping student loan debt and tuition fees.”
Oliver Gardner, from the campaign group Rethink Repayment, told LBC previously: “People are very quick sometimes to dismiss this issue by saying it’s all wiped at the end of 30 years for Plan 2.
"But that ignores the fact that people, without this ridiculous interest, might have been able to pay back their loan in 20 years.
"They’re still paying it for 10 years longer than they would’ve done if interest was charged at a reasonable rate."