The new Education Secretary, Lucy Powell, has prioritized reforming the student loan repayment system, which she has previously branded “egregious.” In a BBC Radio interview, Powell stated that the scandal is “very much at the top of my in tray.” She is scrutinizing both the repayment threshold and the punitive interest rate (currently 3% above RPI), though she cautioned she cannot make immediate promises. However, she confirmed the government has committed to a review. Powell highlighted that many graduates on current plans face high monthly deductions over a roughly ten-year period yet never reduce the principal capital of their loans, calling it a real cost-of-living issue for young people.
Graduates with Plan 2 loans currently pay 9% of earnings above the repayment threshold. While the maximum interest rate can reach 6.2%, Chancellor Rachel Reeves’s November Budget capped it at 6% for the 2026-27 academic year. Simultaneously, the repayment threshold was frozen at £29,385 until 2030—a move that forces graduates to start repaying sooner than if it had risen with inflation and increases total repayments as wages grow. This has intensified criticism from activists. Campaign group Rethink Repayment has denounced the system as “unfair, unsustainable and in urgent need of reform.” Earlier this year, MPs accused the government of mis-selling, arguing that official presentations a decade ago comparing student loans to £30-a-month phone contracts were misleading and failed to clearly outline the actual terms. The Treasury Committee explicitly labelled those presentations as amounting to mis-selling.
The National Union of Students has urged the government to raise the threshold and lower the repayment rate, calling for “fundamental reform” in the coming years. In a parallel development, the new Prime Minister announced a major shake-up of England’s education system, aiming to tackle youth unemployment by prioritizing technical skills and vocational training. This strategic shift is intended to reduce pressure on universities and boost workforce supply in understaffed industries, particularly as graduate job vacancies continue to decline.