Student Loan Repayment Plans

I beg to move,

That this House has considered student loan repayment plans.

It is a pleasure to serve under your chairship, Ms Lewell. Students across the country have been protesting the unfairness of the student loan system—a system that millions of young people believe is rigged against them and in urgent need of reform. On that I suspect there will be broad agreement—at least I hope so. But this system did not appear by accident. It was designed in 2012, expanded thereafter and defended for over a decade by people who now criticise it.

I was not intending to intervene, but I am afraid what the hon. Member said is not correct. Tuition fees were first introduced by the Conservative Government in the early 1990s and then by the Labour Government in 1998, with top-up fees in 2004. Will he accept that and then proceed?

I will expand on this as I go on, because I think everybody is involved, and I shall distribute responsibility fairly across the board.

Since 2012, around 5.8 million people have taken out plan 2 loans. They were told that university was the gateway to opportunity, that it would pay for itself and that repayments would be manageable. Instead, many now feel that they signed up at 18 years of age with no financial advice and no lived experience to a 30-year financial commitment where the rules can be changed unilaterally, arbitrarily and without consultation.

I congratulate my hon. Friend on securing the debate. Graduates are making massive repayments—9% of their earnings. As he says, they will be paying this debt off for decades, and having to do that is breaking a whole generation. As a society, it is time we had a serious discussion about cancelling student debt, which would provide immediate relief to young people. Does my hon. Friend agree that we should instead fund higher education through progressive taxation?

I think the whole system needs to be reformed. Tinkering around the edges is not going to cut it any more; we are looking for a much fairer system.

I have spoken to the students’ unions at York St John University and the University of York, as well as many graduates, who have told me that a student loan does not even cover the cost of living in our city because housing is so expensive—not only does it put people in debt for the future, but it does not even meet the need now. I believe progressive taxation is the way forward, so that the more someone earns, the more they can pay back into the system, to invest in education, which benefits us all.

I agree that we need to reform this system and look at other ways of doing it. That is the ethos of my ask today: for the Minister to go away and really think about this. I do not want to look at the whole process in this debate, but I want to ensure the Minister is aware of the feeling in this room that we must look at the whole system.

Let us remember how we got here, because I have been reminded of a bit of history. The Conservative party trebled tuition fees to £9,000 in 2012, and the Liberal Democrats, having pledged to oppose any increase, walked through the Lobby to make it happen. This system was not inevitable; it was legislated for. Let me be clear: I do believe that those who benefit from education should contribute to its cost, but fairly, and those who earn more should repay more, fairly. That principle of fairness needs to be the golden thread going through the whole system.

I am on plan 2, which is a dog’s dinner of a system. Like me, is my hon. Friend not surprised that the architects of this Frankenstein’s mess are not even here for the debate? Our generation is picking up the cost of their mess.

I agree with my hon. Friend; we must be clear where the blame lies. It is not fair that a system created by one party and enabled by another is now presided over by my own party, who will clear up the mess. The system burdens millions, such as my hon. Friend, with balances they may never clear. It follows the letter of the principle while violating its spirit. Many believe that the plan 2 loans system is predatory, regressive and kills graduates’ ambitions with stressful spiralling interest.

I have enjoyed the perks of being an elder millennial, graduating in 2004 as a plan 1 student. The retrospective changing of the threshold, burdening plan 2 students with debt, is unbelievable, as is linking interest to the retail price index not the consumer prices index, which the Office for Budget Responsibility has discredited. Does my hon. Friend agree that addressing fundamental fairness means changing those structural factors that came in after people signed up to the agreements?

I will later make the point about the structural imbalance that needs to be corrected. This situation is not just stressful for students; it should also concern the Treasury. Under plan 2 loans, graduates repay 9% of income above £28,470 this tax year. From April, that threshold rises to £29,385. Interest accrues from the moment the first payment is made to a university, long before students have graduated.

Just a couple of weeks ago, I was contacted by a constituent who graduated in 2021 and has already accrued more than £6,000 of interest on her initial debt of £41,000. I was one of the lucky ones: as the first in my low-income family to go to university, I had tuition and maintenance paid. That was a great opportunity and leveller and, without it, I do not think I would be here now. Does the hon. Member agree that students and graduates have been at the mercy of arbitrary decision making for far too long, and that everyone deserves the right to pursue higher education, regardless of their class or generation?

I absolutely agree. This is so important, which is why we are here to look at the system.

Interest accrues from the moment the first payment is made, and it is linked to RPI, with the current maximum rate of 6.2%. Here is the stark reality: in 2024-25, plan 2 loans accrued £12.6 billion in interest, while borrowers repaid just £2.8 billion. In a single year, interest added to balances was more than four times the amount repaid. That is not a slogan but official data.

When graduates open their statements and see their balances rising, despite working hard and repaying every month, their anger is not ideological—it is rational. Students finishing university in 2024 entered repayment with an average debt of £53,000. That is the price tag now attached to aspiration. That burden falls unevenly, as those from wealthier families often avoid large maintenance borrowing and high earners quickly clear balances and reduce interest exposure. But the vast majority of middle earners—our nurses, teachers, engineers and small business employees—repay for decades, and most will never clear the balance.

Does the hon. Gentleman agree that this issue disproportionately affects women and those who have caring responsibilities? I have a constituent who was successfully paying down her student loan. She took a few years off to have children, and when she came back to the employed world, her bill was bigger than when she left university, so the starting point was higher. She knows that she will be paying it off until she retires. Does the hon. Gentleman agree that that is an unacceptable situation to be in?

The hon. Lady makes a valid point. I wholeheartedly agree that the system is rigged against working women who take time out to have children, so we need to make it fairer.

A graduate constituent of mine told me that she was the first woman in her entire lineage to go to university and get a degree, but she feels that that proud moment in her family’s history has been taken away from her by the regret that she has accrued a huge debt. The issue is not an isolated to Ilford South. As we hear from hon. Members across the Chamber, all across the country a whole generation feels bled dry by a system that keeps taking from them.

Another constituent told me that he left university with £64,000 of debt. Four years of repayment later, he now owes more than £99,000. This is not shared sacrifice, but a structural imbalance. We often speak of aspiration, but aspiration cannot thrive under compound interest designed in Whitehall. The repayment threshold sits only a few thousand pounds above the full-time minimum wage. Repayments begin early, just as graduates are finding their feet. People face income tax, national insurance, pension contributions, council tax and rent or, for those who are fortunate enough, a mortgage—and then we add 9%. For many, this does not feel like a loan; it functions as a long-term graduate tax, but without the honesty of calling it one.

From April 2027, the repayment threshold is scheduled to be frozen for three years. Freezing thresholds during wage growth means that more income falls into repayment. It increases lifetime contributions and tightens the squeeze on those who are already stretched. Yes, it improves Treasury forecasts, but is that really the motivation? Fairness is not measured only by spreadsheets. Outstanding student loan balances are projected to reach £500 billion in today’s prices by the mid-2040s.

I am grateful to the hon. Gentleman for making such a powerful speech. Does he share my concern that one of the other consequences of these changes might be that fewer young people decide to go to university? That would obviously be to their detriment, but it would also be to the detriment of society in more general terms.

I agree, and I will make that point shortly. This is not only a graduate issue, but a fiscal time bomb. In 2024-25, write-offs recorded in Department for Education accounts rose to £310 million, up from £121 million the year before. The longer this system continues without reform, the more unstable it becomes for borrowers and Governments alike, and then where is the ambition? Every pound earned above the threshold attracts a 9% deduction, on top of existing taxes. The marginal deduction rate that many middle earners face is far higher than the headline rate suggests. Perception shapes behaviour. If progression feels like it is punished, and if promotion feels like a heavy deduction rather than a reward, morale suffers.

This generation did what we asked of them—they studied, trained and qualified—but many feel let down and misled. So what must change? Not the principle of contribution, because their education has to be paid for, but the fairness of the design. The Minister and the Government urgently need to reconsider the following, and I hope hon. Friends will add to this list: first, whether freezing thresholds is justified in a cost of living crisis; secondly, whether to raise the threshold to alleviate hardship and make the system fairer; thirdly, whether RPI remains an appropriate benchmark for interest calculations; and fourthly, whether a 9% repayment rate disproportionately affects middle earners and should be reduced.

Perhaps it should be a combination of all of the above, because tinkering at the edges will not suffice. Neither will knee-jerk reactions: some of the proposals I have heard, such as cutting the interest rate without addressing the structural flaws, offers only headlines, not solutions. Those who designed the system cannot now pretend they bear no responsibility for its consequences, when they had 12 years to get it right. Equally, suggesting we cut certain courses, as some have suggested, simply because the graduates on those courses repay less, confuses economic return with social value.

I thank the hon. Member for securing this important debate. On the point about some courses being preferable to others, does he agree that it is vital that children from disadvantaged backgrounds have access to the creative industries and are able to pursue careers in those industries if they want to, and that it is shameful to suggest that those courses are somehow worth less than others?

I wholeheartedly agree. Some of those suggestions have made me cringe. University enriches our society, expands horizons and fuels innovation, and today’s young people deserve to have the same choices as those who now seek to restrict them. It is our duty to reform a flawed system that is unfairly trapping millions of young people in debt. Student loans were presented as an investment; for too many, they now feel like a sentence.