MPs Launch Inquiry Into Student Loans

Parliament's Treasury Committee has opened a formal inquiry into student loans and graduate taxation, amid what its chair describes as a "perfect storm" of financial pressures bearing down on young people in the UK.

The investigation, launched this week, will examine whether the terms on which graduates repay their loans are fair, particularly in light of Chancellor Rachel Reeves's decision at last November's budget to freeze the repayment threshold at £29,385 from 2027 to 2030, rather than allowing it to rise with inflation. That freeze means that graduates will start repaying sooner, and more of their salary will be eaten up by loan repayments than they had been led to expect. 

Campaigners have been calling for the freeze to be reversed, alongside lower repayment and interest rates. Currently, Plan 2 borrowers who took out loans in England between September 2012 and July 2023 pay 9% of everything they earn above the threshold, at an interest rate tied to the Retail Prices Index plus up to 3% depending on earnings.

Treasury Committee chair Dame Meg Hillier said that the core question was simple: "Have the goalposts been moved in a way which is unfair to graduates?…Upward interest rates and sometimes particularly high marginal tax rates have clearly led to widespread dissatisfaction among graduates who may not have fully understood their repayment terms and the possibility they could change… There are questions over whether decisions such as freezing the threshold for repayments is placing the burden unfairly on younger people."

But Hillier framed the student loan issue as just one layer in a much wider situation. "Every government will make what seem like rational decisions in their own silo. So you can look at student loans, you can look at renting, you can look at home ownership, you can look at pensions. But cumulatively, the 20-to-30 generation has had a lot piled on them. It's about fairness in the end." She also flagged the looming disruption from AI, and warned that without action, young people risk being left unprepared for a radically reshaped jobs market. "We need to be firing some warning shots now," she said.

The scale of the problem is stark. According to the Institute for Fiscal Studies, the average graduate now leaves university with more than £50,000 in debt. For many, that figure keeps rising rather than falling. The BBC separately found that the government had compared student loan repayments to a £30-a-month phone contract in presentations to teenagers around a decade ago, with presenters instructed not to use the word "debt."

Reeves told MPs this week that she recognised the system was broken, saying "I do recognise that we inherited a broken system when it comes to student finance, as we inherited a broken NHS, a prison system and much more," though she noted there was a "hierarchy of priorities." The Department for Education said that the threshold freeze was designed to "protect taxpayers and students" and pointed out that the system already protects lower earners through income-linked repayments and eventual write-offs.

Former Liberal Democrat leader Sir Nick Clegg, whose coalition government introduced the current fee structure, told the BBC this week that the university tuition system was a "mess."

The National Union of Students said it was "ready to take this opportunity to work together to fix student loans," while campaign group Rethink Repayment said the inquiry would hear from "a huge number of our campaign's supporters who are being held back by these punitive student loans."

Anyone aged 16 or over can submit their experiences to the committee via an online survey. The inquiry will focus on England but will accept submissions from elsewhere in the UK. It will not examine university funding or the administration of individual loans.