Ministers have been accused of ‘tinkering round the edges’ after capping interest paid on student loans at double the current rate of inflation.
After months of increasing pressure, the Government has finally agreed to introduce a 6 per cent cap on the interest graduates pay on what are called Plan 2 and Plan 3 student loans from September.
Plan 2 loans – taken out between 2012 and 2023 – have until now charged interest at the retail price index (RPI) measure of inflation plus up to 3 per cent when earnings are more than £29,385. That means the current maximum is 6.2 per cent.
Those debts and Plan 3 loans, which cover postgraduate masters or doctoral courses, will now be capped at 6 per cent.
But the Government has been criticised for introducing ‘just a stopgap’ measure rather than having a cap which matches inflation – currently 3 per cent.
Conservative leader Kemi Badenoch said that while Labour has ‘finally noticed the Plan 2 student loan problem’, its cap ‘isn’t enough’ as graduates are still paying interest above inflation.
And Tory education spokesman Laura Trott said Labour was simply ‘tinkering round the edges’. She added: ‘Under Labour, graduates are mired in debt with fewer prospects than ever before because of Rachel Reeves’ choices.
‘Her decision to freeze repayment thresholds means young people are paying more, and paying it sooner, all while they have fewer opportunities.’
The Conservatives plan to scrap above-inflation interest on student loans and end ‘dead-end’ university degrees if in power.
Nick Hillman, director of the Higher Education Policy Institute, branded Labour’s measures as ‘just a stopgap’ which would be ‘unlikely to ease the concerns of many 20-something and 30-something graduates.
And the change announced on Tuesday will not affect current students who are on Plan 5 loans.
The announcement comes amid rising fury at Labour for failing to rectify the loan ‘debt trap’ – which has seen debt for some graduates rising by more than their repayments due to high interest rates.
The Chancellor’s freezing of salary thresholds at which repayments kick in at £29,385 at the autumn Budget has further added to graduate misery – with Mrs Badenoch in February telling Sir Keir Starmer that the system was ‘at breaking point’.
The Government has now used the war in the Middle East as justification for introducing its interest cap.
But Downing Street said the costs of the new arrangements, which will affect an estimated 125,000 students on Plan 2 and Plan 3 loans studying at university in 2026/27, would only be set out in the Budget.
Asked if further changes were still being considered, the Prime Minister’s spokesman said: ‘This is a short-term protective measure to provide certainty and shield graduates from the effects of global instability.
‘But we are clear there is more to do.’
