Tories vow to lower interest on some student loans

Conservative leader Kemi Badenoch has said her party would cut the rate of interest charged on some student loans issued in the decade up to 2023.

Writing in the Sunday Telegraph, Badenoch said the Plan 2 loans from that period "increasingly feel like a scam".

An estimated 5.8 million people took out Plan 2 student loans between 2012 and 2023.

The government is under pressure to reduce student debts, including from some Labour MPs, and Chancellor Rachel Reeves has suggested it would be able to cut repayments on loans by lowering inflation.

Loan interest is currently charged at the rate of Retail Prices Index (RPI) plus up to 3%, depending on how much a graduate earns.

Badenoch said she would cap the interest charged to RPI only, which is currently 3.8%, arguing it would help a higher number of students pay off their debts.

The Conservative leader wrote: "I am horrified at what graduates today are dealing with, and this is one of the reasons millions of young people feel they've been stitched up."

The Conservative-Liberal Democrat coalition government introduced Plan 2 loans in 2012 and tripled tuition fees to up to £9,000 a year.

The Plan 2 loans were phased out across England in 2023 but still apply in Wales.

Repayments for the loan begin once a graduate starts earning above £28,470 at roughly 9% of income earned above the threshold.

Payments are largely deducted automatically through the tax system.

The government announced the Plan 2 threshold would be frozen at £29,385 for three years from April, 2027.

A freeze would mean workers earning above that amount will be dragged into making larger repayments on their student loans than if the thresholds had risen in line with inflation.

Reeves defended the measure pledged in the November Budget, describing the student loan system as "fair and reasonable".

Interest fees will decrease as inflation drops, Reeves said.

However, some Labour MPs have criticised the Plan 2 system, including deputy leader Lucy Powell who called it "unfair" and "egregious" last week.

Welsh Labour leader Eluned Morgan told the Senedd earlier this month: "We have no intention of freezing the thresholds and following England in this regard."

The Liberal Democrats said the situation is "appalling" and the whole system needs to be "rethought".