Labour is holding talks about reducing the student loan burden on graduates amid growing anger at the amount they have to pay back.
The Treasury and the Department for Education are said to be holding talks about reversing a freeze to the salary threshold for repayments to start, which was introduced by Rachel Reeves in the Budget.
Ministers are also said to be considering reducing the exorbitant interest rate on loans, after Tory leader Kemi Badenoch threw her weight behind changes.
Anger has been growing at the huge interest rates on so-called ‘Plan B’ loans. Interest is charged at the rate of RPI inflation plus up to 3 per cent, depending on salary, and many former students say their their debt is rising despite being in good jobs.
If there is a change in policy it would mark another U-turn by Sir Keir Starmer’s government on fiscal matters, including business rate relief for pubs.
The student loan issue has been fuelled by Rachel Reeves announcing at the November Budget that the salary thresholds at which repayments kick in are being frozen at £29,385 for three years.
The Conservatives have said they would restrict the rate to RPI only to help higher numbers of graduates pay off their debt.
The party also wants to cut the number of university entrants by 100,000, which they say would save the Government £3.6billion, and fund the same number of extra apprenticeships for 18 to 21-year-olds, as part of a ‘new deal for young people’.
The Treasury and the Department for Education are said to be holding talks about reversing a freeze to the salary threshold for repayments to start, which was introduced by Rachel Reeves in the Budget.
Ministers are also said to be considering reducing the exorbitant interest rate on loans, after Tory leader Kemi Badenoch threw her weight behind changes.
Nick Hillman, the director of the Higher Education Policy Institute think tank, told the i Paper: ‘[Ministers] either need to come out and defend the system and explain why it’s fair, if that’s what they think, or they need to change it.
‘At the moment, they’re not doing either.’
A source told the iPaper that the Treasury was ‘beavering away trying to work out if there is a different combination of the interest rate and the threshold level that makes increasingly influential young graduates stop shouting at them’.
The maximum interest rate is currently 6.2 per cent, almost double the 3.2 per cent rate of inflation as of September 2025.
Reports suggest graduates need a salary of at least £66,000 before they can actually start repaying more than the interest they are accumulating on their loans.
According to a report by the House of Commons Library in December, the value of outstanding loans at the end of March 2025 reached £267 billion.
Speaking on Monday Mrs Badenoch said: ‘We want to change what is going on with Plan 2, where a lot of young people are paying more and more and they’re not clearing any of their student debt, it’s actually increasing.
‘And this is getting worse because of the changes that Rachel Reeves made in the budget, freezing the thresholds, meaning more money is going to be spent effectively on a tax to pay for benefits. That’s not right.
‘So we want student loan payments to be inflation only, not inflation plus 3 per cent and that’s something that’s actually going to make life a lot easier for many young people who are coming out with huge debts, they can’t buy a house, they’re not starting families, and they feel like the world is against them.’
