Student Loan Repayment Plans

Luke Charters Excerpts

Wednesday 25th February 2026 Westminster Hall

[Jas Athwal]

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.

[Mr Luke Charters (York Outer) (Lab)]

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.

[Jas Athwal]

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.

--- Later in debate ---

[Ian Sollom (St Neots and Mid Cambridgeshire) (LD)]

It is a pleasure to serve with you in the chair today, Ms Lewell, and I congratulate the hon. Member for Ilford South (Jas Athwal) on securing this debate.

As we have heard, there are many graduates in this country who make loan payments every month and yet they see their loan balances grow. They are young professionals whose loan statements bear no resemblance to the deal they thought they were signing up to. At the same time, there are students who cannot afford to eat and university finances are precarious across the sector. The systems feel broken, so this debate really matters, and those listening deserve a clear diagnosis of what has gone wrong and a credible path forward. Let me try to give both.

When the plan 2 system was designed, graduates were promised something specific: that they would repay only when earning above a certain threshold, that the threshold would rise with earnings, and that whatever remained after 30 years would be written off—a mechanism to share the cost of higher education between the individual and the state. A higher interest rate for higher earners was a deliberate feature—a progressive measure. Those graduates earning the most would contribute more, to make the system sustainable for those who could not. For many graduates at the time, that deal, however imperfect, felt manageable.

However, there is a problem: successive Governments have treated those promises as suggestions. In 2016, the threshold was frozen when it was supposed to rise, not because the economy required that, but because it was a convenient way to extract more from graduates without the political difficulty of imposing a tax rise. The threshold jumped significantly in 2022, but it was then frozen again, then raised again. Now the Government have given in to the same temptation, budgeting to freeze it for three more years. What graduates have experienced is not a coherent system operating as originally designed, but a set of rules that keep getting rewritten by whoever needs to balance the books that year. That is a core injustice.

To that political failure, though, we must add an economic failure. In the early years of this decade, inflation ran at levels that few foresaw when the system was designed in 2012. RPI, the basis for the interest rate, exceeded 13%. There was a cap on interest rates during that period, which in principle was welcome, but it was implemented too late, and the cap was set too high to make a meaningful difference for most borrowers. Meanwhile, graduates’ starting salaries barely moved in real terms. Interest-linked to a discredited inflation measure running hot, while earnings stood still—that combination has been toxic and the system had no mechanism to correct it.

Although plan 2 graduates suffered from the accumulation of damage caused by those political and economic circumstances, the last Government introduced plan 5. Plan 5 graduates face a lower repayment threshold and a 40-year repayment period before write-off—terms that in many respects are harder than those faced by their predecessors. I hope we do not lose sight of the plan 2 or plan 5 cohort in this debate, because any serious reform of the system must address both.

Before I move on to what can be done about loan repayments, I want to say something briefly about students who are struggling right now. The abolition of maintenance grants after the coalition ended in 2015 loaded the highest debt on to the students least able to bear it. Those from the poorest backgrounds now graduate with significantly more debt, not from their fees but from the additional maintenance borrowing. The level of support has fallen 10% in real terms from its peak. Students skip meals, work hours that damage their studies, and are unable to participate fully in the education that they are notionally receiving. The Government have reintroduced £1,000 grants for maintenance for certain subjects, but the full reintroduction of meaningful maintenance grants for the most disadvantaged students must be a priority.

The most urgent action on repayments requires no review, but a decision: reverse the threshold freeze over the next three years and tie it to earnings, as graduates were originally promised. I hope the Minister can give graduates that commitment today.

For the structural reform that the system genuinely needs, we need to go beyond any single parameter. We need to design interest and repayment structures that are genuinely progressive across the income distribution, including by ditching the discredited link to RPI. We must build a system that also works for people studying flexibly and later in life, not just for 18-year-olds on three or four-year degrees. We are seeing more move to modular courses, so the system needs to be able to cater for that.

Structural reform is needed, which is why the Liberal Democrats are calling for a cross-party royal commission on graduate finance reform. I anticipate that some will see that as a delay, but I do not think it is. We need action on the threshold action now, but the commission needs to address a different, harder question: how do we build a system that future Governments cannot quietly dismantle the moment that fiscal pressure mounts? Every change made retrospectively to the terms has broken a promise to people who made life decisions based on them. Cross-party consensus with independent oversight of key parameters is the only protection against that happening again.

I would like to directly address the suggestion made explicitly by the official Opposition that the answer to fiscal pressure in the student finance system is to have drastically fewer students, and to cut courses, close departments and focus support on degrees whose graduates earn enough to repay quickly. That gets the diagnosis backwards. The graduate earnings premium has declined in Britian, not because we have too many graduates but because we have too few skilled jobs. Many of our peers in the OECD have expanded graduate numbers while maintaining or even raising the earnings premium. We should be asking why those countries have generated skilled professional jobs in a way that Britain has failed to do.

Cutting student numbers accepts that failure as permanent, but that is a counsel of despair. It also fails on its own terms. Setting aside the inherent value of the creative arts—many have made that point—that sector contributes enormously to the economy and enriches all our lives. Arts and humanities courses are also cheaper to deliver, and help to support expensive, lab-based science, technology, engineering and mathematics provision. Cutting 100,000 arts places would not simply reduce the loan book; it would undermine the financial model of the very STEM courses that the Conservatives claim to prioritise.

[Mr Charters]

Before the hon. Gentleman concludes, does he agree that the architects of plan 2 need to say one simple word—sorry?

[Ian Sollom]

I am not personally an architect of plan 2, but the former leader of my party did say sorry, and my party was appropriately punished at the 2015 general election.

The decline in the graduate earnings premium is, at its root, a story about economic underperformance, and that points towards the solution. Universities are not simply places that people go to acquire qualifications; they are also research engines, regional anchors, training grounds for public services and drivers of the innovation that creates the skilled employment that graduates need. The answer to graduates being squeezed is not fewer graduates; it is more skilled jobs generated by the research, commercialisation and civic investment that universities are well positioned to deliver. We face a choice: managed decline, fewer students, fewer courses, talent lost and regions left behind; or transformation—treating universities like the national assets that they are. Graduates and the country deserve better. I hope that the Minister can signal in his response that the Government are making a start on that.