Change is coming – but the government must get student loan reform right
Student loan reform is back on the political agenda. Russell Group Students’ Unions and Rethink Repayment outline how the government can reform the student loan system to make a real difference to graduates.
The Russell Group Students’ Unions represent more than 750,000 students across the UK, and Rethink Repayment are a grassroots campaign run by graduates. We have a shared ambition to make a fairer and more reasonable student loan system. We believe that this requires reforming the current system to create a fair structure which will support students and graduates and encourage the younger generations to invest in their future and the economy.
The student loan system is not fit for purpose. Every year, hundreds of thousands of students leave university with significant levels of debt that have been accruing interest since the day they began their studies. Many graduates will spend decades repaying their loans through a 9% tax rate on earnings above the repayment threshold, with the remaining balance eventually written off by the government.
Total outstanding student debt now sits at almost £300bn, with the average debt for those graduating in 2023 standing at £47,900. At the same time, repayment thresholds for Plan 2 borrowers are due to remain frozen until April 2027, increasing the financial burden on millions of graduates.
We are not alone in our assessment that this system cannot continue.
Lucy Powell, the Secretary of State for Education, recently stated that a review of the loan system is a priority and described the interest rate of RPI+3% as “egregious”. The Treasury Committee’s inquiry into student loans and the taxation of graduates argued that the Government had “mis-sold” loans to young people and that the Government had a “moral obligation” to reverse the recent threshold freezes.
Russell Group Students’ Unions and Rethink Repayment welcome growing consensus that reform is necessary and the prospect of meaningful action that generations of students and graduates have waited far too long to see.
Immediate Reform
We are calling for a more progressive and transparent student loan repayment system that provides certainty for both current students and graduates.
As part of a wider programme of reform across all student loan plans, we are urging the Government to immediately reverse the repayment threshold freeze for Plan 2 borrowers and restore the thresholds to the level that reflects earnings growth since the introduction of the loans.
Currently the interest rate charged on student loans is calculated using the Retail Price Index (RPI). This is the wrong measure. The Office for National Statistics has described it as a weak measure of inflation which tends to be one percentage point higher than the measure of Consumer Price Inflation. We believe that interest should be capped at CPI, as it is a more appropriate measure of inflation which reflects the income and expenditure of graduates.
The terms of student loans have faced multiple adjustments, one of which has been the changes made to the repayment threshold. The loan repayment threshold was initially set at £21,000 and was meant to increase annually but, in reality, it has been frozen and revised multiple times. We are concerned that these frequent changes create uncertainty for students and graduates who are not consulted prior to these changes and believe that the Plan 2 threshold should be reset and adjusted for historic inflation.
Once in a generation opportunity
The current student finance system places too great a burden on students and graduates while failing to provide a sustainable long-term settlement for higher education funding. Reform presents the Government with a once-in-a-generation opportunity to create a fairer and more balanced approach.
This review of student finance must also consider the wider funding model for higher education. Graduates benefit from their education, but so too does society through higher productivity, stronger economic growth, innovation, and improved public services. The cost of higher education should be shared more fairly between graduates and the wider public.
Greater public investment in universities would help ensure that the UK continues to develop the skilled workforce needed for future economic success while reducing the disproportionate burden currently placed on students.
We welcome the Government's willingness to consider reform, but this opportunity must not be wasted. Generations of students and graduates continue to be failed by this unfair system.
If you share our vision for student loan reform and would like to support our campaign, please contact us through the links below.
Find Out More
References
Student loan statistics, House of Commons Library. Available at: https://commonslibrary.parliament.uk/research-briefings/sn01079/
Budget 2025, HM Treasury. Available at: https://assets.publishing.service.gov.uk/media/6929b353345e31ab14ecf735/E03444720_Budget_2025_Web_Accessible.pdf
Powell says student loan system at top of in-tray. Available at: https://www.bbc.co.uk/news/articles/ce8l064xe52o
Student loans: Broken and unfair?, House of Commons Library. Available at: https://committees.parliament.uk/publications/54019/documents/301142/default/