A cross-party group of Members of Parliament has called on the government to reverse the recently implemented freeze on student loan repayment thresholds, warning that the policy increases financial pressure on graduates. The freeze, introduced by Chancellor Rachel Reeves at last October’s Budget, holds the income threshold for Plan 2 loan repayments at £29,385 from 2027 to 2030, rather than allowing it to rise with inflation or earnings as previously planned.
The Treasury Committee, led by chair Dame Meg Hillier, criticised the freeze as unfair and damaging to younger generations, who may face higher repayment burdens as a result. Graduates with loans taken out between September 2012 and July 2023 currently repay 9% of their income above the threshold, a figure that will now remain static for three years rather than adjusting upward. The committee estimated that lifting the freeze would cost approximately £355 million by the 2029-30 fiscal year but argued this would help restore confidence in the student loan system.
Dame Meg Hillier stated that "patience has run out," noting that ministers have acknowledged problems within the student loan framework yet have not prioritised reform. The committee’s report also referenced concerns that the government’s handling of student loans has at times amounted to mis-selling, adding to the financial strain experienced by many in their twenties and thirties.
Shadow Education Secretary Laura Trott condemned the freeze and outlined Labour’s proposals aimed at easing the burden on young people. These include scrapping real interest rates on loans, ending certain degree courses described as “dead-end,” and doubling the number of apprenticeships available.
The Treasury Committee urged the succeeding Chancellor to the Treasury to abandon the repayment threshold freeze at the upcoming autumn Budget. From September, the interest rate cap on Plan 2 loans will be set at 6%, intended to shield graduates from inflationary pressures partly linked to global events such as the conflict in Iran.
Criticism of the freeze spans across political lines, with some MPs highlighting it as a cumulative mismanagement of student finances by successive governments. The committee described the current system as “layering stress” on young borrowers, who face increased repayment burdens without a corresponding rise in income thresholds.
As the government prepares its fiscal plans for the coming years, the debate over student loan reforms and repayment conditions is expected to remain a significant issue for policymakers and voters alike.