Labour MPs have hit out at Britain’s “regressive” student loan system as pressure mounts on Sir Keir Starmer to reform the system, which has left scores of graduates with sky-high debts.
The Plan B student loan system has been hotly debated in recent months, amid an outcry from young people accruing spiralling debt from financial agreements they deem to be “unfair”.
The chancellor has been characterised as a “loan shark” by campaigners, after she announced a freeze on the repayment threshold for three years, leading to some people having to pay a lot more back than they originally borrowed on the high-interest loans.
Sir Keir told on Wednesday told the Commons he will look at ways to make the loans system fairer, but chancellor Rachel Reeves suggested any changes were unlikely to come at the spring statement, which will outline the latest economic forecasts that influence government spending, next week.
Education minister Bridget Phillipson has promised to “look at” Plan 2 student loans earlier this week, but refused to commit to changing the system amid widespread concerns over costs.
On Wednesday, Sir Keir’s own MPs piled further pressure on ministers to reform the “dog's dinner”.
Opening a Westminster Hall debate on the issue, Labour MP for Ilford South, Jas Athwal, said the system was “in urgent need of reform”.
“The whole system needs to be reformed, and tinkering on the edges is not going to cut it anymore. A much more fairer system is what we are looking for at the moment,” he said.
“This whole system burdens millions with balances they may never clear. It follows the letter of the principle whilst violating its very spirit.
“Many believe Plan 2 loans and the system at large are predatory, regressive, kills graduates’ ambitions, and the spiralling interest is stressful for students.”
Labour MP for York Outer Luke Charters shared his own experience as a Plan 2 graduate, describing the current system as “Frankenstein’s mess”.
“It is an absolute dog’s dinner of a system,” he said.
Meanwhile, some Labour MPs called for the government to cancel student loans altogether.
Leeds East Labour MP Richard Burgon said the system is “breaking a whole generation”, and added: “As a society, it’s time for a serious discussion about cancelling student debt. That would provide immediate relief to young people; instead, we should fund our education through progressive taxation.”
Mr Athwal, who called the debate, said while he did not want to “look at the whole process” in the meeting, he asked ministers to “go away and have a real think about it”.
Plan 2 loans were issued to people starting university from 2012 to 2023 in England and Wales, and interest is charged at the rate of RPI (retail prices index) inflation, plus up to three per cent, depending on how much a graduate earns.
From the April after they graduate, borrowers make loan repayments of nine per cent of their income above a repayment threshold, which is currently £28,470.
Following Rachel Reeves’s November budget, the salary threshold at which repayments kick in under the Plan 2 system is set to be frozen at its April 2026 level (£29,385) for three years, instead of increasing with inflation. It is set to increase each year in line with RPI from April 2030.
Earlier in February, the National Union of Students (NUS) gathered in Westminster to call on the chancellor to reverse the decision to freeze the repayment threshold for Plan 2 student loans.
The government has previously said that it inherited the student loans system from the previous Tory government, and said threshold freezes have been introduced to “protect taxpayers and students now, alongside future generations of learners and workers”.
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