Tories vow to lower interest on some student loans

The Conservative Party would cut the rate of interest charged on some student loans issued in the decade up to 2023, Kemi Badenoch has said.

Writing in the Sunday Telegraph, Badenoch said the Plan 2 loans from that period "increasingly feel like a scam".

An estimated 5.8 million people took out Plan 2 student loans between 2012 and 2023.

Education Secretary Bridget Phillipson said that she intends to look at changing the system as the government faces pressure to reduce student debts, including from some Labour MPs.

"We will of course keep looking at this," Phillipson told the BBC's Sunday with Laura Kuenssberg, adding that she wants "a fairer system for students and for graduates".

Chancellor Rachel Reeves has suggested repayments on loans could be cut by lowering inflation.

For Plan 2 loans, interest is currently charged at the rate of Retail Prices Index (RPI) plus up to 3%, depending on how much a graduate earns.

Badenoch said she would cap the interest charged to RPI only, which is currently 3.8%, arguing it would help a higher number of students pay off their debts.

The Conservative leader wrote: "I am horrified at what graduates today are dealing with, and this is one of the reasons millions of young people feel they've been stitched up."

The Conservative-Liberal Democrat coalition government introduced Plan 2 loans in 2012 and tripled tuition fees to up to £9,000 a year.

Responding to Badenoch's plans, the education secretary remarked that it was "galling" to see the Conservatives complaining about a system that their government helped usher in.

"There are flaws in that system," Phillipson said, but she stressed it was one "the Conservatives left behind".

Shadow education secretary Laura Trott shed more light on the Conservatives' plan on Sunday with Laura Kuenssberg, saying that the party wants to "stop the Government funding dead-end university courses".

Pressed by Kuenssberg about which courses would be forced to close, Trott provided the example of creative arts.

Some 75% of loans for these courses, she said, are "not paid back".

The shadow education secretary acknowledged that these are "difficult" decisions but they are the right ones to be making to help young people secure work.

"We'd have to look at the effect on the whole system, but I refuse to keep funding degree courses which are not delivering for young people."

The Plan 2 loans were introduced in September 2012 and phased out across England in 2023 but still apply in Wales.

Repayments for the loan begin once a graduate starts earning above £28,470 at roughly 9% of income earned above the threshold.

Payments are largely deducted automatically through the tax system.

The government announced the Plan 2 threshold would be frozen at £29,385 for three years from April, 2027.

A freeze would mean workers earning above that amount will be dragged into making larger repayments on their student loans than if the thresholds had risen in line with inflation.

Reeves defended the measure pledged in the November Budget, describing the student loan system as "fair and reasonable".

Interest fees will decrease as inflation drops, Reeves said.

However, some Labour MPs have criticised the Plan 2 system, including deputy leader Lucy Powell who called it "unfair" and "egregious" last week.

The Liberal Democrats have also called for an overhaul of the system, suggesting that public sector workers - like nurses, doctors and teachers - should have a section of their debt written off after a decade of service.

The party said that, under their proposals, monthly repayments would be halved within three years for graduates earning £35,000 while maintenance grants of £3,500 would be reintroduced for disadvantaged students.