Martin Lewis urges Chancellor Rachel Reeves to reverse student loans decision

The student loans system is a “nightmare” and a “mess”, consumer champion Martin Lewis has said.

Mr Lewis focused on controversial Plan 2 loans while appearing on ITV’s Good Morning Britain on Monday.

He said changes are being made to the loans that would be struck down by the regulator if a commercial company tried to make them.

Following Chancellor Rachel Reeves’ November budget, the salary threshold at which repayments kick in under the Plan 2 system will be frozen for three years, leading to some people having to pay more.

From the April after they graduate, borrowers make loan repayments of 9% of their income above a repayment threshold, which is currently £28,470.

In the autumn budget, the Government announced that the repayment threshold for Plan 2 loans will be frozen at its April 2026 level (£29,385) for three years, instead of increasing with inflation. Interest rate thresholds, which determine how much interest is added to loans, will be frozen for three years.

Speaking about Plan 2 loans, which were issued to people starting university from 2012 to 2023 in England and Wales, Mr Lewis said: “When they were given them in the first place, it was said that the repayment threshold, the amount you pay 9% above, would go up each year. That is what students were told.

“Now what the Chancellor is doing by freezing that repayment threshold is a unilateral breach of contract. She is changing the contract in a negative way that affects students, or graduates now, which no commercial company would be allowed to do, which the regulator the FCA (Financial Conduct Authority) would strike down.”

Mr Lewis added: “The really big problem with this is it’s regressive. Because lower and middle earning graduates will just pay more each year for 30 years and get nothing from it. Higher earning graduates will pay more each year until their loan is paid off so it will reduce the interest that they pay.

“Structurally, it’s horrible, it’s a breach of contract, it is not moral, Chancellor, you need to reverse that decision and give students what they were promised. The threshold needs to go up with average earnings.”

Mr Lewis added: “It’s psychologically horrible, the way we do student loans. And I understand why many people are out there going: ‘My loan is going up and up, I’m never going to repay it.’

“The system was designed that most people wouldn’t repay it… it’s a graduate contribution, is what I would call it.”

Mr Lewis added: “If you want (students) to benefit you either have to reduce their actual debt, you could reduce their debt, that would make a difference, and still be slightly regressive… or you massively up the repayment threshold, that’s what’s hurting people, too much money going out of their pockets amidst a cost of living crisis.

“And the payment threshold is the key, which is why I’m so furious that the Chancellor is effectively lowering it by freezing it.

“But if you want to do it, you don’t just undo the freeze, you put it up, so you repay 9% of everything above, let’s say 40 grand.

“And then those people who have gained financially, got a graduate premium from their education, they would continue to pay, but those people who haven’t wouldn’t.

“And for the Plan 5 loans, the new loans that students take out now, the repayment threshold is set not much above minimum wage… the system’s a nightmare, it’s a mess.”

He added: “We totally need to think about how we communicate it and change the actual amount people are paying.”

Interest on Plan 2 loans is charged at the rate of RPI (retail prices index) inflation plus up to 3%, depending on how much a graduate earns. The Conservatives have announced plans to restrict this to RPI only.

Earlier in the show, Mr Lewis walked onto the set during an interview with Conservative leader Kemi Badenoch.

During a conversation with her about the Conservatives’ proposals, Mr Lewis told Ms Badenoch: “If you want to help the middle earning students, the most important thing is the repayment threshold should have been increased.”

Ms Badenoch told Mr Lewis: “I’m the first person who’s even trying to solve this problem… I want to make sure that those young people, who are paying and paying, and their debt is not going down, get a relief.

“If you think that there is a better offer, let’s look at it… the whole student loan system is not working properly, someone has to do something.”

Mr Lewis told Ms Badenoch: “As the interest has already been added to so many students’ loans, lowering the interest rate now will only help those who can clear within the 30 years, which means lower and middle earning graduates won’t benefit from that change.”

Earlier in February, the National Union of Students (NUS) gathered in Westminster to call on the Chancellor to reverse the decision to freeze the repayment threshold for Plan 2 student loans.

NUS president Amira Campbell said previously that the Chancellor should look for solutions to a system in “dire need of overhaul”.

A Government spokesperson said: “We inherited the student loans system, including Plan 2, which was devised by the previous government. Threshold freezes have been introduced to protect taxpayers and students now, alongside future generations of learners and workers.

“The student finance system protects lower-earning graduates, with repayments determined by incomes and outstanding loans and interest being cancelled at the end of repayment terms.

“Since we were elected, we have been committed to supporting the aspiration of anyone who can and wants to attend higher education, including by reintroducing targeted maintenance grants to support the Prime Minister’s target of two-thirds of young people taking a gold standard apprenticeship, higher training or heading to university by the age of 25.

“This is all alongside our ongoing support for working people starting off in life, as we build 1.5 million new homes, expanding government-funded childcare, introducing free breakfast clubs and freezing rail fares.”