A cross-party group of MPs is pushing for an urgent review of the student loan repayment system, arguing it places an unfair burden on graduates.
The student loan repayment system in the UK is facing intense scrutiny as more than 120 MPs and peers have called for an urgent review of the current framework. The campaign group Rethink Repayment coordinated an open letter to Chancellor John Healey, arguing that the system places an unsustainable burden on the next generation of workers.
The debate has primarily centered around Plan 2 loans which were issued to students in England between September 2012 and July 2026 and are still given in Wales. Graduates with these loans repay 9% of their income above a certain threshold, but the letter highlights that successive governments’ adjustments to repayment thresholds, coupled with high interest rates, are exacerbating the financial strain on middle-income graduates.
The Financial Strain on Graduates
The letter emphasizes that many graduates see less than half of any pay rise due to a combination of income tax, national insurance, and student loan repayments. This situation has led to widespread concern about the fairness and sustainability of the current system.
The signatories, including MPs with their own Plan 2 loans, argue that the repayment framework requires an urgent review to ensure it is fair, sustainable, and supportive of aspiration.
Tom Gordon, Liberal Democrat MP for Harrogate and Knaresborough, highlighted the issue of fairness, noting that even someone earning an MP’s salary is unlikely to repay their student loan in full. He questioned why the government should be able to retrospectively change loan terms, a practice that would be illegal for banks or mortgage lenders.
Interest Rates and Repayment Thresholds
For the period from 1 September 2026 to 31 August 2027, the interest rates for different student loan plans have been announced. Plan 1 loans taken out between 1998 and 2012, will have an interest rate capped at 4.1%, the applicable Retail Price Index (RPI) rate. The repayment threshold for Plan 1 loans will rise to £28,005 from 6 April 2027 to 5 April 2028.
Plan 2 loans issued between 2012 and 2026, have variable interest rates depending on the borrower’s circumstances. The maximum interest rate for these loans has been capped at 6% for the same period. Similarly, Plan 3 postgraduate loans will also have a maximum interest rate of 6% during this time.
The interest rates for Plan 5 loans introduced in the 2026 academic year, are set at RPI (4.1%). Mortgage-style loans will have an interest rate of 4.1%, with a deferment threshold of £44,311.
The Ticking Timebomb of Debt
Analysis by the Intergenerational Foundation has described the current student loan system as a ticking timebomb set to detonate as today’s students enter the workforce. The report highlights that the cost of university education has been shifted almost entirely onto current students, with Plan 5 graduates facing particularly harsh repayment terms.
The analysis shows that average earners under Plan 5 will repay £56,240 over their lifetime, more than double the £25,700 repaid under Plan 1. Lower earners will see their lifetime repayments rise from £6,430 to £42,070. The report also notes that the government’s contribution to higher education has decreased significantly, from 46% in 2015-16 to just 8% now.
The Intergenerational Foundation has called for the student loan repayment rate to be cut from 9% to 5% for both Plan 2 and Plan 5 graduates, arguing that this would be the fairest and most effective way to restore the government’s contribution. Education Secretary Lucy Powell has acknowledged the need for a review, stating that the issue is at the top of her in-tray.
A Department for Education spokesperson acknowledged the systemic issues, stating, “We know the system we inherited is broken and unfair, and some graduates feel the weight of this more strongly. We want to make sure the student loans system works better for everyone and are considering our response to the Treasury Committee’s inquiry.”
