Haris Malekos
6 min read
The issue of student loans has exploded into life in Westminster in recent weeks, with figures across the political spectrum demanding a serious conversation about the ‘Plan 2’ system. But will it come to anything?
Late last month, Chancellor Rachel Reeves defended her decision in the November Budget to freeze the threshold at which graduates start to pay back their loans as “fair and reasonable”.
She was responding to Martin Lewis, the TV personal finance expert, who earlier that week argued it was “not a moral thing” to do because it was essentially treating debt like tax. “It’s a contract that the government signed with young people who had not been given any education on these loans,” Lewis said, who urged Reeves to “please have a rethink”.
Since then, the Labour government has faced a backlash from a generation of ‘Plan Two’ graduates, seemingly leading ministers to strike a more emollient and open-minded tone on the question of whether student loan reform should be on the table.
Health Secretary Wes Streeting said last week it was a “debate clearly rumbling and worth having”, while Labour Deputy Leader Lucy Powell has this week acknowledged that there are “absolutely” issues around the Plan Two student loan interest.
Under the Plan Two agreement, graduates are charged interest on loan repayments equal to Retail Prices Index (RPI) plus up to three percentage points. However, monthly repayments often do not meet interest, leaving many graduates with debt larger than what they originally borrowed, years after leaving university. Some people have shared details of such cases on social media, fuelling the growing wave of outrage.
Former education secretary Alan Johnson, who is now chancellor of the University of Hull, last week told BBC’s Today programme that the current system is “horrendous”.
It is noteworthy that there are now significantly more MPs with Plan Two student loans than ever before, which is helping calls for reform gain traction in Westminster. Plan 2 loans were issued to English undergraduates who started courses between 2012 and 2022.
PoliticsHome understands that several Labour MPs in this cohort have had discussions with sympathetic ministers about what can be done to help address the sense of unfairness.
It is currently seen as unlikely that the Labour government will commit to a task as significant as overhauling the student loan system, especially given the many other major policy challenges that it is already grappling with, like thorny and complex SEND reforms.
Speaking on Thursday, Reeves said she would lower student loan repayments by cutting inflation. “But by getting inflation down, we can also reduce the interest on student loans and I think that will make a big difference in making that more affordable,” she said.
However, there are no signs of the debate disappearing.
Two Labour-aligned think tanks, The Institute for Public Policy Research and Labour Together, are preparing new pieces of work in this area, PoliticsHome understands, while Plan 2 MPs like Labour backbencher Chris Curtis are publicly calling for changes to the system. Clips of New Statesman journalist Oli Dugmore calling for reform on BBC Question Time have gone viral.
It is for this reason that other political parties are starting to look at it.
PoliticsHome understands that the Conservatives, under whom the current student loan system was created, are looking at student loans as part of work on their wider higher education policy. The Tories have been warned that they must rebuild support among young people to have a route back to power, with just 8 per cent of 18-24-year-olds and 25-39-year-olds voting for them at the 2024 general election, according to YouGov.
Former Conservative education secretary Justine Greening told PoliticsHome that Kemi Badenoch’s party should take the lead on student loans to help “reconnect with young voters”.
She told PoliticsHome: “The very system that was supposed to support aspiration and social mobility has now become a system that has the opposite effect. Many young people, especially with fewer family resources to fall back on, are understandably scared of the student debt that they are going to have to take out if they want to get to university.
“It means that tuition fees and student loans are a mainstream ‘retail’ policy, just like income tax rates. If it wants to build a connection to those generations, then the Tory party needs to lead on this and come up with real solutions.”
A former Conservative adviser who worked close to the issue in recent Tory administrations was sceptical about a “total rewriting” of the system, however.
“My sense is that officials know a lot of people have issues with the student loan system, but anything to make it more affordable is going to result in the taxpayer picking up more of it, which isn’t fair for half of the population who don’t go to university,” they said.
Reform UK, which, if a general election were held tomorrow, would be in a strong position to form a government, according to opinion polls, pledged in its 2024 manifesto to scrap interest on student loans and extend loan capital repayment periods to 45 years.
When asked about the party’s current position, a Reform source told PoliticsHome: “We are prepared to be radical to end the injustice of high student debt.”
“Young people should learn vocational skills that earn good wages, or degrees that are genuinely useful to them and the country,” they added.
PoliticsHome understands that Ed Davey’s Liberal Democrats are planning to release a university policy paper in the coming weeks.
There is some nervousness among Lib Dem figures about making universities a major policy focus, with the coalition-era U-turn on tuition fees and subsequent electoral backlash felt to be a ghost not yet fully exorcised, PoliticsHome understands.
However, the party is understood to be considering how students can be protected from changes to their contract, capping total payments in real terms, and whether the use of RPI can be replaced.
Meanwhile, a Green Party spokesperson told PoliticsHome: “The government has become a Student Loan Shark, with people on Plan 2 student loans — the vast majority — finding themselves saddled with debt for over 30 years. We strongly oppose plans to freeze the loan repayment threshold and want to see the exorbitant interest rate cut.
“Ultimately, the Green Party wants to see the restoration of grants and the end of tuition fees. Education is a right, not a privilege, and we need to see it as public investment, not private debt.”
