Pressure mounts on Starmer to fix student loans as MPs launch inquiry
Sir Keir Starmer is facing growing pressure to act on claims that the student loans system is unfair, as one of Parliament’s most powerful committees has launched an inquiry into the impact of the system and the taxation of graduates.
MPs on the Treasury select committee are asking young people their views on the system, whether they would still take out loans today and how student loan repayments affect their finances.
Announcing the decision, the committee said it was “aware that many graduates are deeply dissatisfied with loan terms”, which has been widely criticized by many Labor MPs as well as Conservative leader Kemi Badenoch and consumer advocate Martin Lewis.
Dame Meg Hillier, Labor chair of the Treasury Committee, said: “This inquiry is about fairness. Fundamentally we are asking, have the goalposts been moved in a way that is unfair to graduates?”
“Many people have benefited from expanded access to higher education, but rising interest rates and sometimes particularly high marginal tax rates have clearly led to widespread dissatisfaction among graduates who do not fully understand the repayment terms and that they can change.”
He added: “It is critical that the model for financing university education is sustainable, but there are questions about whether decisions such as freezing the repayment threshold unfairly place the burden on young people.”
According to the Institute for Fiscal Studies (IFS), students now leave university with more than £50,000 in student loan debt on average.
From April after graduation, borrowers pay 9 per cent of their earnings towards loan repayments over £28,470.
In the budget, chancellor Rachel Reeves announced that the repayment threshold for graduates’ Plan 2 loans given to English language students starting undergraduate courses between 2012/13 and 2022/23 will be frozen at £29,385 for three years, meaning many people will have to pay more.
Interest on Plan 2 loans is charged at up to RPI inflation plus 3 per cent, depending on how much the graduate earns. The Conservatives have announced plans to restrict this to the RPI only.
Martin Lewis said lowering the interest rate would only help graduates who can repay their loans within 30 years and the repayment threshold should be increased to help low- and middle-income graduates.
Sir Keir said the government would look at ways to make the student loan system fairer.
MPs will seek evidence about graduates’ repayment terms, including the extent to which they are reasonable and proportionate in the wider context of graduates’ marginal tax rates.
This will be used to inform the committee’s views on whether people are treated fairly after leaving higher education.
The committee also allows anyone over the age of 16 to contribute their experiences directly to the research through an online survey. Questions include whether they would take out the loan today if given the option and whether repayments would have a significant impact on their financial planning.
Evidence must be presented to the committee by Tuesday, April 14. A survey will also be conducted for young people to directly contribute to their experiences.
