Rachel Reeves promises to lower student loan costs by tackling inflation

Rachel Reeves has pledged to reduce repayments on student loans by bringing down inflation, amid widespread concerns over costs.

Protesters who gathered outside the Houses of Parliament on Wednesday characterised the Chancellor as a loan shark in response to changes which will lead to some students paying more for loans.

Labour deputy leader Lucy Powell described current interest rates on the loans as “egregious” and said the burden was “unfair” and “endless”.

Speaking to broadcasters, the Chancellor said: “The changes I made in the budget froze the threshold at which Plan 2 student loans are paid back, and we’ve frozen that for a couple of years.

“That has been done in the past but we are also bringing down inflation and, of course, the interest that people are paying on student loans is linked to inflation.

“Inflation peaked at more than 11% under the previous government that did push up the cost of those student loans.

“But by getting inflation down, we can also reduce the interest on student loans and I think that will make a big difference in making that more affordable.”

The Chancellor announced in November’s budget that the salary level which determines when graduates on plan 2 loans must begin to repay debt will be frozen at £29,385 for three years, leading to many having to pay more.

Interest is charged on Plan 2 loans at the rate of Retail Prices Index inflation and up to 3% depending on how much a graduate earns.

Ms Reeves later insisted the system was “fair” and “reasonable” after criticism of the move.

Asked by a caller during a phone-in on LBC whether she agreed with the Chancellor’s assessment, Ms Powell described student loans as “a kind of graduate tax”, adding many struggle to make progress on paying off the debt.

“I think, to be fair, what Rachel was probably talking about was more in the generality, which is: is it fair that graduates make a contribution towards their education? Because obviously, as graduates in general, we do earn a lot more money over our lifetime.

“And I think the general principle is fair, but I do accept absolutely that there are issues around this plan too, and the plus 3%, that particularly is particularly egregious, in my humble opinion.”

NUS president Amira Campbell said the Chancellor should look for solutions to a system in “dire need of overhaul”, such as capping interest.

“The current student loan system is freezing our future,” she said.

“How can graduates be trying to build our professional lives all while the Chancellor is acting like a loan shark, taking hundreds a month off our pay cheques while the interest grows even faster? Is this the reward we get for following their advice and investing in our future?”