UK launches student loan inquiry after rising anger over repayment terms

MANCHESTER, England (CN) — The U.K. government has launched an inquiry into England’s student loan system after rising anger from graduates who say repayments have become costly and unpredictable.

The review comes days before a key change to the system takes effect in April, when the repayment threshold for many borrowers is set to increase, even as the government plans to freeze the threshold until 2030.

Members of Parliament on the cross-party Treasury Committee said they will investigate how high interest rates and repayment rules affect borrowers, including whether governments should be able to change loan terms after they are introduced.

“This inquiry is about fairness,” said Labour lawmaker Meg Hillier, who chairs the committee that oversees government spending. “Fundamentally, what we’re asking is: Have the goalposts been moved in a way which is unfair to graduates?”

The review will examine loan interest rates, how they are set and whether repayment terms are reasonable when combined with taxes graduates already pay, such as income tax.

The committee is accepting evidence until April 14.

The debate has become politically sensitive because millions of borrowers hold so-called Plan 2 loans, which were issued in England between 2012 and 2023 and require graduates to repay 9% of earnings above a set threshold.

Chancellor Rachel Reeves announced the threshold would be frozen at approximately $38,900 between 2027 and 2030 rather than rising with inflation, a decision campaigners say will still pull more graduates into higher repayments over time.

That means graduates will begin repaying sooner and more of their salary could be subject to student loan deductions.

The Department for Education said the freeze aims to “protect taxpayers and students.”

A system few support

The system has grown into one of the largest financial commitments facing younger Britons.

According to the Institute for Fiscal Studies, students now leave university with more than $66,000 in debt. Government data shows only about 23% of Plan 2 borrowers are expected to repay their loan in full.

Hillier said the changes have left many graduates frustrated.

“Many people have benefited from widened access to higher education, but 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,” she said.

“It’s critical that the model for financing university education is sustainable but there are questions over whether decisions such as freezing the threshold for repayments is placing the burden unfairly on younger people.”

Student loans in England operate differently from typical U.S. education debt. Repayments are collected automatically through the tax system once graduates earn above a threshold and any remaining balance is written off after a set period.

Critics say the model increasingly resembles an extra tax on graduates, while campaign groups are pushing for major changes.

Rethink Payment, a campaign group run by graduates, is pushing for restoring the repayment threshold to where it would have been without freezes, cutting the repayment rate from 9% to 5% and lowering interest rates so balances do not keep growing.

The National Union of Students said the repayment rules have become unfair. “Student loans are no longer fair or fit for purpose, effectively operating as a stealth tax on graduates. The chancellor’s freeze to repayment thresholds will hit graduates on Plan 2 loans hard, while high interest rates mean that for most their debt is growing faster than they can pay it off.”

Public anger and shrinking returns

Polling suggests the issue has broad public support beyond graduates themselves.

A YouGov survey found 76% of Britons believe the current interest rate is too high. It also showed a growing appetite for major reform to the system that funds universities.

Nearly half of respondents, 44%, said the government should write off some or all student debt, while 36% of those supporting relief said it should be wiped out entirely.

Another 68% said annual tuition fees of 9,000 pounds (about $11,895) are too high.

Experts say the inquiry also touches on a broader debate about whether higher education still delivers the financial return once used to justify large student debts.

Research suggests the so-called graduate premium, the extra earnings degree holders make compared with non-graduates, has fallen over the past two decades even though graduates still tend to earn more overall.

One study found a decline in the graduate premium from 18% to 8% for both men and women between the mid-1990s and the mid-2010s.

Nick Hillman, who advised the government when Plan 2 loans were introduced in 2012, said the system has shifted since it was created.

“A lot of the tweaks that have happened to the student loans mean that 100% of the costs of the education are now being paid back by Plan 2 borrowers. Whereas when we designed the system back in 2012, it was meant to be more like a 40/60% split” between borrowers and government funding.

Others argue the inquiry should go further.

Professor John Blake of the University of Salford, who leads research on higher education policy, said focusing only on repayment rules risks missing the bigger issue.

“The inquiry will not look at the funding of universities, which is a bit like commissioning a thorough investigation into whether your mortgage payments are fair while declining, on principle, to discuss the house,” Blake said.

The committee’s findings could shape future reforms to a system that underpins how universities in England are funded as well as how millions of graduates repay the cost of their degrees.

Courthouse News reporter James Francis Whitehead is based in England.

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