More than 120 MPs and peers have written to Chancellor John Healey calling for an urgent review of the student loan repayment system, which they say places an “unsustainable burden on the next generation of workers”.
The open letter was coordinated by the campaign group Rethink Repayment. Its cross-party signatories include Laura Trott, the Conservative shadow education secretary, and Munira Wilson, the Liberal Democrats’ education spokeswoman, as well as MPs who hold Plan 2 student loans themselves.
The letter does not single out a particular loan plan or nation. The debate has, however, centred on Plan 2 loans, taken out by students in England between September 2012 and July 2023 and still issued in Wales. More than half of graduates who responded to a Treasury Committee survey this year said they would not take out a loan again.
Plan 2 graduates repay 9 per cent of earnings above the repayment threshold.
The signatories say that “successive governments’ adjustments to repayment thresholds”, together with high interest and marginal tax rates, are “placing an unsustainable burden on the next generation of workers”.
Many middle-income graduates, the letter says, “see less than half of any hard-earned pay rise due to a combination of income tax, national insurance and student loan repayments”.
It adds: “We are united in the belief that the current repayment framework requires urgent review… to ensure it is fair, sustainable, and supportive of aspiration.”
The letter refers to a decision taken last November by then-Chancellor Rachel Reeves to freeze the Plan 2 repayment threshold at £29,385 between 2027 and 2030, rather than allowing it to rise with inflation. The freeze means graduates will start repaying sooner than they otherwise would have done, and will repay more as their salaries rise.
Campaigners want that decision reversed, a call echoed by the Treasury select committee in its report last month following its inquiry into student loans.
The committee’s report referenced a BBC investigation which found the government compared Plan 2 repayments to £30-a-month phone contracts in promotional presentations to teenagers a decade ago. This was “inaccurate for higher earners”, the report said, and “amounted to mis-selling”.
Last week, Education Secretary Lucy Powell said the interest rate on Plan 2 loans was “egregious” and that the issue was at the top of her in-tray.
Tom Gordon, Liberal Democrat MP for Harrogate and Knaresborough, who signed the letter, told the BBC he could not “see an end in sight” to his own Plan 2 repayments and expected his debt to be written off after 30 years in line with the repayment terms.
“If someone earning an MP’s salary still isn’t likely to repay their student loan in full, what chance does someone on a much lower income have?” Gordon asked, describing it as “an issue of fairness”.
“Governments have changed the repayment terms and increased interest rates after people had already signed up,” he said. “No bank or mortgage lender could retrospectively rewrite the terms of a loan like that. It simply wouldn’t be allowed. So why should the government be able to do it?”
Oliver Gardner, founder of Rethink Repayment, said the letter showed “the student loans crisis” was not “a partisan issue”.
“We believe that now is the time to create a system that is fair and that unshackles millions of graduates from mountains of student loan debt,” he said.
A Department for Education spokesperson said: “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.”
