The chancellor has declined a request to raise the income threshold for repaying “Plan 2” student loans, maintaining the current terms despite calls for relief from graduates burdened by debt. In September, Education Secretary Lucy Powell privately urged Chancellor John Healey to increase the salary threshold at which graduates begin repaying 9 percent of their income toward their student loans. Healey rejected the proposal and announced no adjustments in the recent budget, with his deputy, Emma Reynolds, responding to Powell’s appeal rather than Healey himself.

Powell, who has been outspoken about the perceived unfairness of the Plan 2 loan terms, has previously labeled them “egregious” and revealed her own son is affected by these loans. The Plan 2 repayment system applies to approximately 5.5 million graduates in England who studied between 2012 and 2023. Under the current rules, anyone earning above £29,385 must repay 9 percent of their income beyond this threshold. This level was frozen by former chancellor Rachel Reeves for three years starting in April 2027, a move projected to reduce the government’s student loan debt by £5.6 billion and increase annual repayments for affected graduates by £259 by the decade’s end.

The loan conditions also include an interest rate set at inflation plus 3 percent, pushing rates close to 10 percent in recent periods. Some critics highlight that graduates earning over £50,271 effectively face a marginal tax rate of 51 percent on income above this figure. Conservative leadership candidate Kemi Badenoch has proposed cutting the interest rate by removing the additional 3 percent charge.

Campaigners and graduates have expressed frustration with the government’s stance, arguing the financial burden on former students is excessive. Oliver Gardner, founder of the student loan advocacy group Rethink Repayment, accused the chancellor and Greater Manchester Mayor Andy Burnham of exploiting graduates as a source of revenue, pointing to a Treasury select committee’s view that the government has a “moral obligation” to lift the repayment threshold freeze.

Several graduates underscored the real-world impact of these policies. Emily Pitt-Shaw, 25, who holds degrees from King’s College London and the University of East Anglia, carries a £92,000 debt while working part-time and freelance jobs, noting that many of her numerous job applications have gone unanswered. Josie Stephens, 27, who studied politics and philosophy at the London School of Economics and pays £330 monthly toward her debt, described the repayments as a “tax on social mobility” that disproportionately affects those from lower-income backgrounds. Milla Cartwright, 27, who graduated in 2025 and holds degrees from Groningen University and the University of East Anglia, has made over 300 job applications amid her combined loan debts.

The disagreement highlights ongoing tensions between government departments as they prepare for a comprehensive review of public spending next year. Officials from both the Treasury and the Department for Education declined to comment on the matter.