Thank you for contacting me regarding Plan 2 student loans.
Plan 2 loan graduates have seen the balance they owe rise for years, even while repayments are made. This leads to an endless cycle of debt for too many, while the taxpayer has to pick up the tab for those who are never able to fully repay their balance and write off their loans. The Institute for Fiscal Studies estimates that the average Plan 2 graduate needs to earn £66,000 a year just to keep pace with the interest.
To fix this, I agree with the Opposition's plan to abolish real interest rates on Plan 2 student loans. This will ensure student loan balances will never rise faster than RPI inflation. Under this plan, a doctor in 2029 with £80,000 of student debt will save £58,000 in lifetime repayments and clear their loans sooner, while a graduate with £40,000 of student debt on a salary of £50,000 would save £26,000 in lifetime repayments - and would clear their loan five years faster than under the current system.
I recognise that the Government has announced that interest on some Plan 2 loans will be capped at 6 per cent in the coming academic year. However, these proposals do not go far enough as graduates will still be ripped off paying interest above inflation. I believe interest above RPI should be scrapped entirely for student loans.
The Government is making things worse for graduates with its plans to freeze repayment thresholds, which would increase repayments for lower- and middle-income graduates even more. My colleagues and I will continue to urge Ministers to stop the freeze, but it is disappointing that the Government ordered Labour MPs to vote down these plans in Parliament.
The Government should make student loan reform a priority to support young people into better futures by adopting the New Deal for Young People to scrap real interest rates on Plan 2 student loans, double apprenticeships and stop dead-end degrees.
Thank you again for taking the time to contact me.
