Millions of graduates face student loan uncertainty as ministers defend reforms

• More than 50,000 graduates have submitted evidence to MPs.
• Government says student loans can be altered because they are heavily subsidised.
• Critics argue repayment rule changes have left borrowers paying more for longer.

The government's handling of student loans has come under fresh pressure, with ministers defending changes to repayment terms while graduates and campaigners question whether borrowers are being treated fairly.

The debate over UK student loans has intensified as MPs begin a formal inquiry into the system in England, focusing on repayment thresholds, interest rates and the growing burden faced by many graduates. At the centre of the row are millions of borrowers with Plan 2 student loans, who have seen changes to repayment rules that critics say could leave them paying more over the lifetime of their debt.

Appearing before the Treasury Select Committee, Treasury minister Lucy Rigby argued that student loans are fundamentally different from commercial loans because they rely heavily on taxpayer support.

Rigby reportedly told MPs that fewer than half of young people attend university, meaning the government must also consider the interests of taxpayers who do not benefit directly from higher education.

She argued that most students would not qualify for a conventional bank loan because they lack a credit history, assets or collateral. Unlike commercial borrowing, student loans can be written off if graduates do not earn enough to meet repayment requirements.

Because of that, Rigby reportedly said the government has the right to make changes to certain terms of the scheme.

Her comments come as criticism grows over decisions affecting Plan 2 loans, which were issued to students who entered higher education between 2012 and 2023. Many graduates say their outstanding balances continue to rise because monthly interest charges often exceed the amount they repay.

The controversy intensified after chancellor Rachel Reeves announced a three-year freeze on the salary threshold at which Plan 2 borrowers begin repaying their loans. The repayment threshold will remain at £29,385 from April 2027, meaning more graduates could find themselves making repayments sooner or paying larger amounts over time.

Graduates push back

The parliamentary inquiry has attracted a significant public response, with more than 50,000 people submitting evidence to MPs.

Many borrowers told the committee they were unaware of the long-term implications of the loans when they signed up. Some claimed interest rates were higher than their mortgage costs, while others argued they had been led to believe repayment thresholds would rise in line with inflation.

The National Union of Students has urged MPs to examine both interest rates and repayment thresholds as part of the inquiry.

Consumer campaigner Martin Lewis has also criticised retrospective changes to loan terms. According to reports, he argued that such alterations would not be permitted for a commercial lender under normal consumer protection rules.

Last week, campaigners told MPs that some graduates feel they are being unfairly used as a source of revenue to help fund broader government spending commitments.

Philip Augar, who led the government's 2019 review of post-18 education, reportedly drew comparisons between graduate concerns and past financial mis-selling scandals. However, skills minister Jacqui Smith rejected that comparison, reportedly saying she did not believe the situations were equivalent.

Ministers insist system remains fair

The government maintains that the current system still offers protections unavailable through conventional borrowing.

A government spokesperson said, as quoted in a news report, that ministers recognise concerns about student loan repayments and understand why the issue matters to graduates.

The spokesperson said the government had raised the repayment threshold for the first time since 2021, capped maximum interest rates this year and reintroduced targeted maintenance grants.

Ministers also argue that lower-earning graduates remain protected because repayments are linked to income rather than the total amount owed. Any remaining balance and accumulated interest are written off at the end of the loan term.

The Treasury committee's inquiry is expected to continue examining whether the current system strikes the right balance between supporting university access, protecting taxpayers and ensuring graduates are treated fairly.