Money expert Martin Lewis has issued a warning about major changes to the student loan system that graduates need to understand – and campaigners are calling on Rachel Reeves to take action.
So What's Actually Going On?
The student loan system has become a bit of a mess.
There are now multiple “plans” depending on when you started university, and the differences between them are huge.
If you took out a loan between 2012 and 2022, you’re on Plan 2.
That means you could be paying interest of up to 6.2% – that’s three percentage points above inflation.
Compare that to people who started uni before 2012 (Plan 1) or after 2023 (Plan 5), who pay a much lower rate of around 3.2%.
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The Numbers Are Pretty Shocking
Here’s the thing that’s got people talking: £15 billion in interest was added to student debt in England in 2024-25.
But only £5 billion actually got paid back.
Three times more interest is being added than graduates are paying off.
People might have paid back their loan in 20 years without the high interest.
Instead, they’re paying for 10 years longer than necessary.
What About Lowering the Interest Rate?
There’s growing pressure to reduce the interest rate which would make a real difference to how long people spend paying back their loans.
We’re discussing this exact topic on this week’s episode of The Money Gains Podcast.
We break down what a rate cut would actually mean for working people and whether it’s realistic to expect any changes.
If you’re paying off student loans – or know someone who is – it’s worth a listen.
What's Rachel Reeves Saying About It?
The Chancellor has defended the current system, calling it “fair” despite the growing criticism.
But MPs are starting to push back.
One recently told Parliament that the way interest rates work with earnings was never properly explained to borrowers.
They called it “a mis-selling scandal waiting to unfold.”
That’s strong language – especially from someone who used to work at the Financial Conduct Authority.
The Government Has Made Things Worse
In Budget 2025, the government announced that the repayment threshold for Plan 2 loans would be frozen for three years from April 2027.
That means more of your salary will be taken for repayments, even if your wages don’t go up much.
Martin Lewis has long argued that student loan terms should be locked into law.
Right now, the government can change the rules after you’ve already signed up.
And they have done – multiple times.
A recent poll found that 84% of people support loan forgiveness, grants, or bursaries for students training to work in the NHS.
Support crossed political lines too, with 93% of Labour voters and 80% of Reform voters backing the idea.
The Royal College of Nursing has been pushing for a scheme where nurses’ debt would be gradually cleared in return for years of service.
Research suggests it could keep nurses in the profession for up to a decade longer.
So What Can You Actually Do?
First, check which plan you’re on.
The repayment threshold varies:
- Plan 1: £26,900 from April 2026
- Plan 2: £27,295 (frozen from April 2027)
- Plan 5: £25,000 (frozen until 2026/27)
You repay 9% of earnings above your threshold. So if you’re on Plan 2 earning £30,000, you’d pay about £243 a year.
Don’t panic about the headline debt figure on your statement.
Martin Lewis calls them “as useful as a chocolate teapot” because they focus on interest that many people will never actually pay – the loan wipes after 30-40 years depending on your plan.
The Bottom Line for Graduates
The system isn’t fair for everyone.
Plan 2 borrowers got the worst deal, and the government seems in no rush to fix it.
If you’re on Plan 1 or Plan 5, your interest is much lower.
If you’re on Plan 2, the best advice is to make sure you understand what you’re actually paying and don’t make decisions based on scary-looking statements.
And if you think the system needs changing?
Let your MP know. Rethink Repayment is pushing for reform, and more voices make a difference.
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Disclaimer: Content on this page is for informational purposes and does not constitute financial advice. Always do your own research before making a financially related decision.
