Powell Says Student Loan System Needs Urgent Review
Ninoda.com – Education Secretary Lucy Powell has placed the student loan system at the very top of her priorities, declaring that Plan 2 student loan debt “needs looking at” as part of her commitment to creating a fairer system for graduates. The new Labour deputy leader told the BBC she stood firmly by her February comments describing the interest rates that graduates with Plan 2 loans were paying as “egregious,” while acknowledging she cannot make specific promises about changes at this stage.
Plan 2 loans were taken out by students in England between September 2012 and July 2023, and continue to be issued in Wales. Graduates currently pay back what they earn above the repayment threshold at a rate of 9%. In November last year, then-Chancellor Rachel Reeves announced that the repayment threshold for students with Plan 2 loans would be frozen at £29,385 between 2027 and 2030, rather than rising with inflation as previously planned.
Interest Rate Concerns and Repayment Thresholds
This change means students will start repaying their loans sooner than they would otherwise have done, with their rising salaries leading to greater overall repayments over time. Campaigners have called for that decision to be reversed, arguing it places an unfair burden on young people. Reeves later defended the government’s measures as “fair and proportionate” for getting “the balance right between tax and spending.”
In April, the government confirmed that interest on some student loans in England, including Plan 2, would be capped at 6%. Speaking to Matt Chorley on BBC Radio 5 Live, Powell revealed she was “very familiar” with the issue personally, as her eldest child has a Plan 2 loan. She explained: “I think it’s not just about the threshold of when people start to pay it back, but also the interest rate which is RPI [retail prices index] plus 3%.”
“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. The government has committed to a review of that, it’s very much at the top of my in-tray as the secretary of state, and I want to make sure we look at this so it’s fair for students.”
Powell described the situation as a “real cost-of-living issue” for young people, adding that many are “paying high repayments and never, ever paying off the capital of their student loan.” When pressed on whether she would examine the system more closely, Powell replied: “Yes. I can’t make any promises, but it needs looking at.”
MPs on the Treasury Committee this month said that comparing student loan repayments to phone contracts or cinema tickets “amounted to mis-selling” by the government. This criticism came after a BBC investigation found the government had compared student loan repayments to £30-a-month phone contracts in promotional presentations to teenagers a decade ago.
Earlier this year, Conservative leader Kemi Badenoch announced she would cut the rate of interest charged on Plan 2 loans, capping it at RPI only. The current RPI rate stands at 3%, which would represent a significant reduction for many borrowers. As Powell says the student loan system requires attention, graduates across England and Wales await further developments in what could become a major policy shift under the new government.
