MP inquiry opens on student loan thresholds and interest rates

The news

An inquiry by MPs into the student loan system in England begins on Tuesday. The National Union of Students said the inquiry should examine the graduate earnings repayment threshold and interest rates. The government has defended the decision to freeze the repayment threshold and has capped the interest rate on Plan 2 loans at 6%. New research shows 33% of people now think a university degree is not worth the time and money, up from 14% in 2005.

What's at stake

Graduates in England repay 9% of earnings above a threshold frozen at £29,385 from 2027. Any unpaid balance is written off after 30 years, effectively by the taxpayer. More than 50,000 people have submitted written evidence to MPs, with many graduates saying they did not understand the terms of their student loans when they signed up. The government said the current system protects lower-earning graduates because repayments are linked to earnings.

The British Social Attitudes survey shows the share of people who say a degree is not worth the time and money has risen sharply since 2005. One graduate told the BBC that student loans had contributed to a decision to delay starting a family because interest would still accrue during maternity leave. The government said it had raised the graduate repayment threshold since coming into government for the first time since 2021 and brought back some targeted maintenance loans.

The case for

Lowering the repayment threshold or cutting interest rates would reduce monthly payments for middle-earning graduates who currently face rising balances even when they are not required to repay. This would ease pressure on graduates who took out loans without fully understanding the long-term cost. It would also address the growing number of people who now question whether a degree delivers value for the debt incurred.

The case against

Reducing repayments would shift more of the cost onto taxpayers because unpaid balances are written off after 30 years. The current system already links repayments to earnings and protects lower earners, so further changes would not improve graduate outcomes or address the underlying value of degrees. The government has argued that the existing structure balances support for graduates with public finances.

Why it matters now

The inquiry will hear evidence from student organisations and experts this week. If the threshold is lowered or rates cut, graduates would repay less over 30 years and more of the remaining balance would fall to taxpayers. If no change is made, the frozen threshold and 6% interest cap remain in place from 2027.

Further reading

BBC News

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