The student loan crisis has finally entered the parliamentary agenda. On Thursday, the House of Commons Treasury Committee launched a new inquiry “into student loans and wider graduate taxation”, inviting anyone over the age of 16 to come forward with their experiences. some New statesman journalists have already contributed.
The move comes after months of mounting pressure — from individuals, the media and the public — on an issue that has simmered quietly for years. It is about changes to the student finance system made by the coalition government in 2011, affecting anyone who started a degree in England and Wales after September 2012, so-called ‘Plan 2’. For a decade and a half, discussion has been limited. Not anymore.
Recent developments have brought this issue into the spotlight. More than 20 Labor MPs have called on the government to reform the system, with one calling Plan 2 a “mis-selling scandal waiting to unfold”. Meanwhile, the Conservatives and the Lib Dems have proposed their own solutions. But where is the government? Where is Labour, for whom graduates – already frustrated with their financial circumstances – are a shrinking but critical voter base?
The Treasury Committee describes the problems clearly: many graduates are very unhappy with the terms of their loans. Issues include high levels of debt – students now leave university with more than £50,000 of debt according to the Institute for Fiscal Studies (IFS) – interest rates above inflation, the earnings threshold for repayments (£28,470, frozen from April 2027 by Rachel Reeves in the November Budget), and the income repayment rate (9 per cent of income). Extremely high marginal tax rates: 37 per cent for graduates earning up to £50,000 and 51 per cent for those earning more.
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Timing also matters: remaining debt is canceled 30 years after graduation for those on Plan 2 between 2012 and 2023. Those who started after 2023 face a lower interest rate but a 40-year repayment term. For many, this system is financially suffocating.
Different parties and groups have proposed different solutions. The Conservatives suggest reducing the interest rate on RPI, reducing the total repayment burden for some graduates over their lifetime. The Lib Dems propose raising the earnings threshold in line with average earnings rather than RPI, which would slightly increase total payments for higher earners but immediately reduce monthly payments.
Neither proposal satisfies Rethink Repayment, a campaign for a fairer student loan system. Its founder, Oliver Gardner, 27, argues that the threshold should be raised, interest capped at the consumer price index and monthly payments reduced from 9 to 5 percent of earnings. Combined, these measures would cost the Treasury £12 billion for the final Plan 2 cohort and £60-70 billion if applied to all Plan 2 graduates. In contrast, the Conservative and Lib Dem proposals have price tags of £4 billion and £3 billion respectively for 2022-2023 graduates.
Student loan policy is just as important as economics. Regulating different parts of the system benefits different groups and carries different political implications. For many people, the high interest rate is the most scandalous element. Graduates with higher earnings pay far more than they borrowed, effectively subsidizing those with lower earnings. Kemi Badenoch has called it unfair, describing it as a “fraud”. Gardner echoes the moral argument: it is fundamentally unfair to treat young people as “cash cows”.
Iain Mansfield, head of education at Policy Exchange and a former Tory special adviser, agrees. “Students may have to contribute to the cost of their studies, but there is no way they should be charged much more than they have borrowed to fund NHS and welfare bills,” he said. The reality is grim: graduates with an average loan need a salary of at least £66,000 before they can start repaying the principal, making full repayment virtually impossible for most.
Public sentiment reflects this anger. Ipsos VOTING As of February, it shows that a majority opposes any interest on student loans, with only 2 percent supporting above-inflation rates. However, everyday financial constraints matter more than just interest rates. Many graduates prefer lower monthly payments, even if it means paying more in total. The Lib Dem proposal to raise thresholds in line with income helps, but only slightly. The IFS estimates it would reduce average lifetime payments by £8,000, while the immediate impact for those earning between £29,385 and £31,710 would be around £210 less in 2029–30.
Labor MPs are surprised by the sudden interest in Plan 2 from the parties that implemented it. Some express “bewilderment” at the Conservatives and Liberal Democrats positioning themselves as saviors after 15 years of silence.
So why now? Several factors converge. The Plan 2 group has matured into positions of influence, including Parliament itself. The cost of living crisis and high housing costs intensify the economic pressures on young graduates. Treasury Committee Chair Meg Hillier highlighted this “perfect storm” of challenges, from expensive housing to inadequate pensions and poorly paid jobs. Failure to act risks long-term economic and social damage, she warned.
Rachel Reeves’ November Budget made the problem worse. By freezing student loan repayment thresholds alongside the income tax threshold, the government increased the burden on graduates. Gardner notes that linking the payments to other public spending – such as the NHS – is misleading: graduates are paying for their education, not subsidizing unrelated services.
The political urgency is growing. While Labor may not expect changes until the autumn budget, pressure is mounting. The scope of the inquiry extends beyond thresholds: it questions how student loans interact with taxes and whether the burdens and benefits are shared fairly between generations. Other parties are now weighing in – Reform proposes scrapping interest rates and the Greens advocate canceling student debt entirely.
The system’s flaws are clear. Graduates are paying for an education that may not deliver promised benefits, limiting their ability to plan for the future. Any isolated change – such as lowering interest rates or adjusting thresholds – simply shifts burdens without addressing overall fairness. Real reform requires consideration of lifetime costs, disposable income impacts, and generational equity.
The government’s silence cannot be explained by ignorance. Reeves has admitted he inherited a broken system, alongside a broken NHS and prison system. But the implication is stark: graduates are low in the hierarchy of priorities. How long they will stay there remains unclear. The investigation closes on April 14; its findings will reignite pressure on the government.
Reform and the Greens have broadened the conversation beyond thresholds, raising questions about equality, marginal tax rates and intergenerational fairness. Meg Hillier summed it up: “This inquiry is about fairness. Basically, what we’re asking is, have the goalposts been moved in a way that’s unfair to graduates?”
Young people are paying too much for a university education that may not benefit them as much as was promised, which is negatively affecting their life prospects and ability to plan for their future – as well as their trust in government and their sense of having a stake in the country. Changing one part of the system in isolation will simply shift the burden from one group of graduates to another. But addressing this in a meaningful way that considers not just the interest rate but the lifetime cost of loans, their impact on disposable income and the extent to which they represent value for money has a price tag of tens of billions.
It may not have been Labor that introduced the system, but it is a Labor government that holds the parcel as the music stops and the pack threatens to explode.
(Further reading: The public is turning against the student loan system)
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