Ministers considering making student loans system 'fairer' but deny suggestion of another U-turn

Students who graduated between 2012 and July 2023 are paying on average almost ten per cent of their salary each year in loan charges with interest of more than 6.2 per cent.

Almost six 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 percentage 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.

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The Treasury has since told The Times it would not U-turn on the terms of the loans, but senior government sources confirmed that early discussions were taking place to add measures to make the loans fairer.

One told the newspaper that ministers "knew they had a problem on their hands” and that an increasing number of MPs had raised the issue.

Speaking to LBC earlier this month, Skills Minister Baroness Jacqui Smith defended Labour's stance on student loans.

She told Nick Ferrari at Breakfast: "I get that people are worried about the cost of living pressures that they're facing, including for those people who are earning above the threshold, how much they're repaying in terms of their student debt.

"There are a whole range of ways that we can tackle that by making sure the student loan system is fair for those on lower incomes and in fact, those who haven't been to university at all.

"But also by tackling things like childcare costs, the cost of housing, how much it costs to send your children to school. All of those things are action this Government is taking.

"But if you benefit from a university degree, and people do in terms of higher pay throughout their lives, it's right that you should. Should help to repay that with a considerable investment from government as well in your ability."

Another Labour source told The Times: "This was not a problem that we created but one we inherited from the Tories,” the source said. “But we realise it is something that we need to try and address."

However, they added that it was "too early" to say what specific measures might be taken.

It comes after Chancellor Rachel Reeves insisted the current system is "fair," telling LBC: "it is important that you don't have to start paying back the student loan until you earn enough money.

"And that is the point of the student loan system, that you get the loan, you get that great university education and you only pay it back if you afford, if you can afford to do so.

"And obviously after a period of time, that gets written off entirely.

"So if you are able to get a job that pays a good wage, you'll pay that money back quicker.

"But if you're never able to repay, that loan will eventually be written off. I think that is a fair system."