Fairness of student loans system to be examined by MPs in new inquiry - "have the goalposts been moved?"

The Treasury Committee is asking young people for their views on issues like whether they would still take out loans today and how their student loan repayments are impacting their finances. Committee chairwoman Dame Meg Hillier said loan interest rates and sometimes high marginal tax rates “have clearly led to widespread dissatisfaction among graduates who may not have fully understood their repayment terms and the possibility they could change”.

She 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 Tuesday April 14. There will also be 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 said.

At the 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 and 2022.

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

Mr Lewis has said 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.

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

National Union of Students (NUS) president Amira Campbell said: “This parliamentary inquiry is the clear result of sustained pressure from students and graduates. The Treasury select committee is showing the leadership that students, graduates and young people need from the Chancellor, and at NUS we are ready to take this opportunity to work together to fix student loans now.”

The NUS will advocate for a student loan model that does not financially penalise graduates with “retroactive changes to contracts that they signed when they were 17”, she said.

On Wednesday, Chancellor Rachel Reeves said any change to the student loan system would have to be “fully costed and fully funded”, and indicated that the Government had prioritised other spending commitments in the NHS and defence. She told MPs on the Treasury select committee that controlling inflation would help reduce payments for graduates.

The Tories said the Plan 2 system – which was introduced under the Conservative-led coalition government in the 2010s – was “ripping off young people and punishing aspiration”. The party has recently pledged to limit interest rates for these loans to RPI only in a bid to help graduates with costs.

Shadow education secretary Laura Trott said: “As with everything Rachel Reeves touches she makes it worse: freezing the repayment thresholds has left young people paying more, sooner. It is demoralising for young people that as they work harder all they see is their debt climbing.”