Ministers have rejected accusations that recent changes to student loans are unfair, arguing that they are so heavily subsidised that the government has the right to alter their terms.
Pressure has been intensifying on the UK government to reform the student loans system but the chief secretary to the Treasury, Lucy Rigby, told MPs on Wednesday that less than half of young people go to university, and the government had to bear in mind “fairness to taxpayers as a whole”.
The current debate has focused on the millions of students from England and Wales who have taken out a “plan 2” loan. Many have money taken from their wages each month to repay their debt but what they pay off is often dwarfed by the interest added every month, so the sums they owe get bigger.
The catalyst for the row was Rachel Reeves’s decision last year to freeze the salary threshold for plan 2 loan repayments for three years. The above-inflation interest rates that apply to many loans have also come under fire.
The consumer campaigner Martin Lewis has said that changing the terms of the loans “would not be allowed for any commercial lender – it would go against all forms of consumer law”.
At a Treasury select committee on Wednesday, Rigby was asked whether she thought it was fair that any government could vary the terms of people’s loans.
She said that, for most people who want to go to university, “you couldn’t get a commercial loan because you don’t have the credit history, you don’t have the collateral, you certainly wouldn’t be able to get something which you could write off if you don’t hit certain repayment thresholds”.
She added: “Student loans, despite having the name they have, are really very, very different as a product … to a commercial loan. Because they are so heavily subsidised by the government, the government has the right … to change some of those terms of the loan.”
The committee is holding an inquiry into student loans and the taxation of graduates. Last week, campaigners told the MPs that many graduates felt they were being unfairly used as “cash cows” to finance measures benefiting older people, such as the state pension triple lock.
Philip Augar, who led the 2019 government review into post-18 education, last week appeared to compare the situation facing graduates to the car finance and payment protection insurance mis-selling scandals.
However, Jacqui Smith, the minister for skills, said: “I think he is wrong … I don’t think this is equivalent to that.”
More than 52,000 people responded to a recent call for evidence by the committee. Some claimed that the student loan interest rates were “extortionate” and “higher than my mortgage”, while others said they had been assured that repayment thresholds would rise with inflation.
Last week, a government spokesperson said: “We recognise that some graduates have concerns about the cost of student loan repayments and understand why this is an important issue. We inherited the current system and have taken steps to make it fairer – including raising the repayment threshold for the first time since 2021 and capping maximum interest rates this year to protect graduates from rising costs.”
The spokesperson said the government had reintroduced targeted maintenance grants, adding that the system “protects lower-earning graduates”, with repayments linked to income and any outstanding balance and interest written off at the end of the loan term.
