Student loan repayment rates an 'unsustainable burden', chancellor told

Image source, Getty ImagesByHazel Shearing, Education correspondent and Rahib Khan, Education reporterPublished5 August 2026, 18:39 BSTUpdated 1 hour agoMore than 120 MPs and peers have asked the chancellor to carry out an "urgent review" of the student loan repayment system.An open letter coordinated by the campaign group Rethink Repayment says the current set-up places an "unsustainable burden on the next generation of workers".Among the cross-party signatories are MPs with their own Plan 2 student loans, which have come under particular scrutiny this year.Last week, Education Secretary Lucy Powell said the interest rate on those loans was "egregious" and the issue was at the top of her in-tray.Current and former students have different student loan plans depending on where they live in the UK and when they went to university.The letter to Chancellor John Healey does not specify a particular plan signatories would like to be reformed, nor does it name a particular nation. However, the debate has centred around Plan 2 loans, which were taken out by students in England between September 2012 and July 2023 and are still issued in Wales. Graduates pay back what they earn above the repayment threshold at a rate of 9%.The letter says that "successive governments' adjustments to repayment thresholds – together with high interest and marginal tax rates – are placing an unsustainable burden on the next generation of workers".It says many middle-income graduates "see less than half of any hard-earned pay rise due to a combination of income tax, national insurance and student loan repayments".It adds: "We are united in the belief that the current repayment framework requires urgent review... to ensure it is fair, sustainable, and supportive of aspiration."Powell says student loan system at top of in-trayPublished28 JulyPhone contract comparisons 'amounted to mis-selling' student loans, MPs sayPublished7 July'Deeply misleading' school talks compared student loans to £30 phone contractsPublished3 MarchThe letter refers to a decision taken last November by then-Chancellor Rachel Reeves to freeze the Plan 2 repayment threshold at £29,385 between 2027 and 2030, instead of allowing it to rise with inflation.The change would result in students starting to repay their loans sooner than they would otherwise have done, and their rising salaries leading to greater repayments.Campaigners want that decision to be reversed – a call echoed by the Treasury select committee in a report following its inquiry into student loans last month. The committee's report referenced a BBC investigation which found the government compared Plan 2 student loan repayments to £30-a-month phone contracts in promotional presentations to teenagers a decade ago.This was "inaccurate for higher earners", the report said, and "amounted to mis-selling".Student loans inquiry finds many did not understand terms Published27 MayHow do student tuition and maintenance loans work?Published18 JunePhillipson defends student loan change and says average repayments will rise by £8 a monthPublished24 FebruaryVoluntary student loan repayments rise in EnglandPublished7 FebruaryLaura Trott, shadow education secretary for the Conservatives, and Munira Wilson, education spokeswoman for the Liberal Democrats, are among MPs who have signed the letter.Tom Gordon, Liberal Democrat MP for Harrogate and Knaresborough, also signed the letter and told the BBC he could not "see an end in sight" to his own Plan 2 student loan repayments. Instead, he said he expected his debt to be written off after 30 years in line with the repayment terms."If someone earning an MP's salary still isn't likely to repay their student loan in full, what chance does someone on a much lower income have?" Gordon asked, adding it was "an issue of fairness"."Governments have changed the repayment terms and increased interest rates after people had already signed up," he said."No bank or mortgage lender could retrospectively rewrite the terms of a loan like that. It simply wouldn't be allowed. So why should the government be able to do it?"Oliver Gardner, founder of Rethink Repayment, said the letter showed "the student loans crisis" was not "a partisan issue"."We believe that now is the time to create a system that is fair and that unshackles millions of graduates from mountains of student loan debt," he said.A Department for Education spokesperson said: "We know the system we inherited is broken and unfair, and some graduates feel the weight of this more strongly. "We want to make sure the student loans system works better for everyone and are considering our response to the Treasury Committee's inquiry."Related topicsStudent financeStudent debtUniversities