Abstract:
There has been considerable recent debate about the terms of 'Plan 2' student loans, which were issued to 11 cohorts of English undergraduate university students: those who started their courses between academic years 2012/13 and 2022/23.1 We have written before about how these student loans work, and how they have changed over time - including as a result of changes announced by the Chancellor at the Autumn Budget 2025.2 To recap, under current government policy, the key repayment terms of these loans are: From the April after they graduate, borrowers make loan repayments of 9% of their earnings above a repayment threshold, which is currently £28,470. Interest is typically added to an individual's balance at the rate of inflation measured by the Retail Prices Index plus 3% ('RPI plus 3%') while studying. After graduation, interest is added at a rate between RPI inflation and RPI plus 3% depending on their earnings each year. The repayment and interest rate thresholds (which determine how much interest is added) have been increased over time, although in different ways from year to year. Before the Autumn Budget 2025, they were set to increase in line with RPI each year. They will now be frozen for three years from April 2027 and will then increase in line with RPI. Any outstanding loan balance is written off after 30 years with no adverse consequences for graduates. In this report, we consider the potential impacts of four sets of potential reforms to these Plan 2 loans. We examine the proposals made by the Conservative party and the Liberal Democrats (which focus on changes to the interest rate and repayment threshold respectively), as well as proposals for broader changes (where we specifically model the proposals made by the campaign group Rethink Repayment) and proposals that consider the loan repayment rate and write-off period (where we examine proposals similar to those favoured by some backbench Labour MPs). These distinct sets of reforms each target different features of the current loan system that some people dislike. They would have very different impacts on repayments in the short and longer term, and each would affect different groups of graduates.
