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Sir Keir Starmer has promised to look at making Britain’s student loans “fairer” as Labour MPs condemned a “rip-off” system for younger people.
The prime minister described the student loan system as “broken” on Wednesday as he was pressed by the Conservative leader Kemi Badenoch to reduce interest rates charged to graduates.
However, some Labour MPs are pushing for an alternative plan targeted at lower earners that would see salary thresholds for repayment increased and a reduction in monthly payments.
During Prime Minister’s Questions in the Commons, Starmer said that Labour had inherited the Conservatives’ “broken student loans system” but added: “We will look at ways to make it fairer, and we will do other things within the economy to help students.”
The Treasury has held discussions on reforms to the system and Starmer’s spokesman said that “work continues” on possible changes.
Anger about “plan 2” loans to those who started university between 2012 and 2022 has been growing since the Budget, when chancellor Rachel Reeves announced that the salary at which repayments begin would be frozen for three years at its April 2026 level of £29,385. Graduates contribute 9 per cent of salary above this level and the debt is cancelled if not repaid after 30 years.
Income thresholds to determine how much interest is paid will also be frozen. The average graduate will be about £3,000 worse off over their lifetime as a result, according to the Institute for Fiscal Studies.
Badenoch this week said the Conservatives would cap interest charged on loans, which can rise to the RPI rate of inflation plus 3 per cent for higher earners, to RPI only. At PMQs on Wednesday, she challenged Starmer to match the pledge.
The biggest gainers from an interest rate freeze would be graduates earning more than £51,245, who are currently charged 6.2 per cent on their loans. By contrast, the biggest losers from Reeves’ freeze on repayment thresholds are the bottom third of earners.
A succession of Labour MPs criticised Reeves’ decision in a Westminster Hall debate on Wednesday organised by Ilford South MP Jas Athwal. “A whole generation feel bled dry by a system that just keeps taking from them,” he said.
Chris Hinchliff, who himself has a plan 2 loan, said Reeves’ freeze was a “mis-step” and urged ministers to “get on and deal with this”. Kate Osborne, Jarrow and Gateshead East MP, described interest rates as a “scandal and a rip-off” as graduates saw their total debt increasing despite repaying thousands of pounds a year. Bell Ribeiro-Addy, Clapham and Brixton Hill MP, likened student loan terms to “something a loan shark would offer”.
However, Reeves suggested she would not make any changes at next week’s Spring Statement, designed to be a policy-free event signalling stability. “The spring forecast is just a forecast,” she said when asked by broadcasters about student loan reforms. “I was really clear that I wanted to end the instability of Budget after Budget.”