Labour MPs call for urgent action on 'unfair' student loans

More than 20 Labour MPs have urged the government to reform the student loan system in England, as they criticised "rip-off" interest rates and unfair changes to repayment terms.

Leading a debate in Parliament, Jas Athwal called for the salary threshold people start to repay loans to be raised and for interest rates to be cut.

Conservative leader Kemi Badenoch later raised the issue at Prime Minister's Questions, saying student loans had become "a debt trap" and interest rates needed to be reduced.

In response, Sir Keir Starmer said the government would look at ways to make the system fairer.

When students start repaying their loan and the interest paid depends on when they attended university and which plan they are on.

For students in England, the interest rate is normally set by the RPI measure of inflation.

It is currently 4.3% for anyone who started university in 2023 or later, but for those on Plan 2, who started university between September 2012 and July 2023, the interest is RPI, currently 3.8%, plus up to 3%, depending on earnings.

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

Concerns about the system have been growing since the government announced in the autumn Budget that the salary threshold when graduates must start repaying their Plan 2 loans would be frozen for three years from April 2027.

This means that workers earning above that amount are dragged into making larger repayments on their loans than if thresholds had risen in line with inflation, while others will have to start repaying their loan earlier.

More than 20 Labour MPs spoke during a debate in Westminster Hall to call for changes to the system.

Several criticised the decision to freeze thresholds as "moving the goal posts" and changing the terms of loans retrospectively.

Athwal said the system was "in urgent need of reform" and "tinkering around the edges is not going to cut it".

The MP for Ilford South accepted that those who benefit from higher education should contribute to its cost but argued the system should be fairer.

He highlighted how students start to build up interest even before they have graduated and monthly interest payments often exceed the amount being paid off the loan, meaning graduates see their balance rise despite being in work.

Athwal also argued that middle earners were hit harder than high earners, who could clear their loan more quickly and build up less interest.

"A whole generation feel bled dry by a system that just keeps taking from them," he added.

He questioned whether freezing repayment thresholds was justified in a cost-of-living crisis and whether RPI was an appropriate benchmark for interest calculations.

Labour MP Luke Charters, who has a Plan 2 student loan himself, said the system was "a dog's dinner".

Another Plan 2 graduate, Chris Hinchliff said the decision to freeze the repayment threshold was a "misstep" and urged the government to "get on and deal with this" before the next general election.

Kate Osborne, the Labour MP for Jarrow and Gateshead East, said she had been contacted by more than 700 people with "horror stories" about the level of student debt they had built up.

She said the amount of interest being charged was "a scandal and a rip-off", giving examples of constituents who owed as much as £60,000, with their total debt increasing by tens of thousands of pounds despite being in full-time work.

Meanwhile, Bell Ribeiro-Addy, the Labour MP for Clapham and Brixton Hill, compared the terms of student loans "to something that a loan shark would offer".

Osborne and Ribeiro-Addy were among several Labour MPs who said they backed scrapping tuition fees altogether to boost social mobility and make higher education more accessible.

During PMQs, Badenoch said all parties had increased the cost of going to university and challenged Sir Keir over whether he would cut interest rates on student loans.

The prime minister said the Conservatives had "scammed the country" and his government had "inherited their broken student loans system".

"We've already introduced maintenance grants to improve the situation, which they scrapped, and we will look at ways to make it fairer, and we will do other things within the economy to help students," he added.

Responding to the Westminster Hall debate, Education Minister Josh MacAlister echoed comments from Secretary of State Bridget Phillipson on Tuesday that the government would look at the issue of student loans and how the system could be improved.

Defending the government's approach, he said ministers were lifting the repayment threshold for Plan 2 loans to £29,385 in April - above the average graduate salary.

However, he said "enormous pressures on budgets" and "the need for fairness across the education system" meant from April 2027 a three-year freeze was necessary.

He added that the average Plan 2 borrower would only repay around £8 more a month as a result of the freeze.

The Conservatives have said they would cut the interest rate on Plan 2 student loans by capping it at RPI.

The party has also said it would close 100,000 university places to alleviate debt and fund apprenticeships instead, arguing some degrees were leaving graduates worse off.

Liberal Democrat spokesman Ian Sollom called on the government to reverse its decision to freeze repayment thresholds and design more progressive interest structures, ditching the link to RPI inflation.

The party has also suggested public sector workers - like nurses, doctors and teachers - should have part of their debt written off after a decade of service.

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