MPs to look at fairness of student loans system

Charlene Young, senior pensions and savings expert at AJ Bell, said: “For a Government that came to power promising to incentivise work and provide a shot in the arm for the nation’s long-stagnant productivity rates, the Chancellor’s decision to freeze the Plan 2 student loans repayment threshold from April was a bizarre call. It’s also not the first time the system has been tinkered with, with a three-year freeze in the repayment threshold announced in 2022 by Boris Johnson, accompanied by a change in the uplift measure from average earnings to RPI thereafter.

“It is therefore no surprise that the Treasury Committee has joined swathes of graduates with Plan 2 loans – issued to students who started their undergraduate courses between 2012 and 2022 – in raising their concerns about the fairness of the proposals.

“Current interest on Plan 2 loans comes in at the RPI rate of inflation plus up to 3% depending on a graduate’s earnings, while repayments for undergraduate loans are paid at 9% on earnings above the £28,470 threshold. That threshold will rise to £29,385 in April and is then slated to be frozen for three years. In practice, particularly with inflation soaring in recent years, this means that many are running to stand still when it comes to actually paying their loans back, ultimately resulting in the vast majority accepting that they may have to wait until their debt is wiped after 30 years.

“Keir Starmer has already confirmed the Government will look at whether the system is fair following recent scrutiny over the upcoming freeze. The prospect of additional pressure from an influential group of MPs that form the Treasury Committee could well be enough for the Government to announce yet another policy U-turn, and graduates across the country will no doubt be watching closely to see how the inquiry plays out. Although Rachel Reeves today stood behind the 2025 budget decision and signalled that any change would only be implemented following a full review linked to a Treasury fiscal event.”