Question to the Department for Education:

To ask the Secretary of State for Education, if she will make an assessment of the potential merits of freezing the interest applied to student finance loans during (a) career breaks and (b) earning reductions relating to childcare responsibilities.

The government wants a sustainable student finance system that is fair to students and taxpayers, and which continues to enable anyone with the ability and the ambition to benefit from higher education to do so. The student finance system protects borrowers, including people on career breaks or with childcare responsibilities, if they see a reduction in their earnings. Student loan repayments are made based on a borrower’s monthly or weekly income, not the interest rate or amount borrowed, and no repayments are made for earnings below the relevant repayment threshold.

The recent student loan (Plan 5 reforms) makes the student loan system fairer for taxpayers and fairer for students, helping to keep the system sustainable in the long term. The new loan plan asks graduates to repay for longer and from an income threshold of £25,000, but also increases certainty for borrowers by reducing interest rates to RPI only. This change ensures that borrowers on the new Plan 5 terms will not repay, under those terms, more than they originally borrowed over the lifetime of their loans, when adjusted for inflation. Lower earners will still be protected. If a borrower’s income is below the repayment threshold of, currently, £25,000 per year, they won’t be required to make any repayments at all. Any outstanding debt, including interest accrued, is written off at the end of the loan term with no detriment to the borrower. No commercial loans offer this level of borrower protection. To further protect borrowers, where the Government considers that the student loan interest rate is too high in comparison to the prevailing market rate (PMR) for comparable unsecured personal loans, it will reduce the maximum student loan interest rate charged by applying a cap in line with the PMR.

A comprehensive equality impact assessment of how the student loan reforms may affect graduates, including detail on changes to average lifetime repayments under Plan 5, was produced and published in February 2022. It is available at: https://www.gov.uk/government/publications/higher-education-reform-equality-impact-assessment.