Graduates deserve a fairer student loans system
When I received my university offer in 2012, I did what hundreds of thousands of young people do each year: I worked through the checklist of preparations for starting higher education. At the top of that list was registering for my student loan. I would be among the first of the plan two cohort of borrowers. For me, as for many others, this was not optional. Without student, finance, university simply would not have been possible.
At the time, I was grateful. The system was presented as fair and progressive: graduates would contribute only once earning above a reasonable threshold, repaying 9% of income over that level. Any remaining balance would be written off after 30 years. It was framed not as conventional debt, but as a time-limited graduate contribution.
What I did not expect was that the terms of that agreement would be repeatedly rewritten, or that future students would face a worse deal, repaying at a lower income threshold and for longer.
Successive governments have altered the student loan system in ways that cumulatively increase the burden on graduates. Repayment thresholds for Plan 2 borrowers have been frozen, dragging more modest earners into repayment each year as wages rise. Meanwhile, new borrowers under Plan 5 will repay for 40 years rather than 30 and begin repaying at a lower income threshold.
These changes may appear technical, but their impact is profound. The decision to freeze repayment thresholds means that more of a graduate’s income is exposed to the 9% repayment rate. As the National Living Wage rises, the gap between minimum earnings and the repayment threshold narrows dramatically. On current projections, by 2031 the repayment threshold could effectively align with full-time minimum wage earnings. That would mean young people on some of the lowest graduate salaries are repaying their loans almost immediately.
This was never the intention of the system. Instead, graduates were told that they would only begin contributing when comfortably earning, not while struggling at the start of their careers.
Graduates are entering an already difficult job market, and in the face of a cost-of-living crisis it is wrong for them to face additional financial pressure. The Chancellor’s decision to freeze Plan 2 repayment thresholds at £29,385 from April 2026 until April 2030 will see graduates repaying their loans earlier in their careers and reducing take-home pay at precisely the point when financial pressures are highest. For the current cohort of students, and all of those who began their courses from August 2023, the repayment threshold is even lower, set at £25,000 annually.
To someone already facing rising rent, energy bills and transport costs, this matters enormously. It is money that cannot be saved for a house deposit, invested in a pension, or spent supporting the wider economy.
At the same time, rising interest rates mean many borrowers see little or no reduction in their overall balance despite making regular repayments. For some graduates, the total amount repaid over their working lives will far exceed the original amount borrowed. Let me be clear – this is a stealth tax. This is particularly problematic once again for those on plan two loans, who are faced with variable income-based interest rates.
The consequences extend beyond graduates’ personal finances. Of particular concern is the impact on public sector middle-income workers, such as doctors, nurses and teachers, who may face disincentives to take on additional hours when higher earnings trigger increased repayments and interest. This creates perverse incentives at a time when our public services are already under considerable pressure.
The student loan system should support aspiration and social mobility, not undermine them. Yet the cumulative effect of these policy decisions risks doing exactly that, placing an increasing financial burden on graduates while eroding trust in the fairness of the system.
That is why I have submitted a motion to Parliament calling on the Government to urgently begin uprating the graduate repayment thresholds, to ensure new graduates on lower incomes are not disadvantaged and to reconsider the current interest rate structure. Without reform, more graduates will see their take-home pay squeezed while making little progress on the balance of their loans.
Higher education should expand opportunity, not impose a growing financial penalty on those who pursue it. The student loan system must remain fair, proportionate and supportive of aspiration. The current system is drifting further and further from those principles. It is crucial that the government work to correct this.
Tom Gordon is the Liberal Democrat MP for Harrogate and Knaresborough.
