New UK Education Secretary Lucy Powell has declared that reforming the student loan system is at the top of her agenda, aiming to ensure fairness for graduates. Powell stated her commitment to reviewing the interest rates and repayment terms for Plan 2 loans, acknowledging that the current system places a significant cost-of-living burden on young people.
Powell reiterated her past criticism of the interest rates on Plan 2 loans, which were taken out by students in England between September 2012 and July 2023. She described these rates, which are RPI plus 3%, as "egregious." She also pointed to the issue of graduates repaying high amounts without reducing the capital of their loans. "I think it's not just about the threshold of when people start to pay it back, but also the interest rate... I think I've called it in the past egregious and I'm not going to change my opinion on that just because I'm now the secretary of state," Powell told BBC Radio 5 Live.
The education secretary acknowledged that while she "can't make any promises" about specific changes, the matter requires urgent attention. The government has committed to a review of the student loan system, and Powell confirmed it is a primary focus for her department.
Plan 2 loans require graduates to pay back 9% of their earnings above a certain threshold. In April, the government capped the interest rate on some English student loans, including Plan 2, at 6%. Previously, in November, then-Chancellor Rachel Reeves announced that the repayment threshold for Plan 2 loans would be frozen at £29,385 between 2027 and 2030, rather than increasing with inflation. This freeze means graduates will start repaying sooner and potentially repay more as their salaries rise.
Campaigners have urged the government to reverse the threshold freeze, with Reeves defending the measures as "fair and proportionate." In a separate development, MPs on the Treasury Committee this month criticized government presentations that compared student loan repayments to phone contracts or cinema tickets, suggesting it amounted to mis-selling. A BBC investigation previously found similar comparisons were made in promotional materials aimed at teenagers.