Tories to force vote on scrapping student loan interest
The Conservatives will force a vote on Wednesday on scrapping interest above inflation on student loans after Rachel Reeves said that fixing child poverty was more important.
The Tory party will use one of its opposition day debates to call for “real interest” on student loans to be stopped and the salary repayment threshold to be lifted. It claims to be the only party to have set out a fully funded plan to fix the “rip-off”,which was introduced under the Conservative-led coalition government.
The chancellor admitted on Tuesday that the system was “broken” but said scrapping the two-child benefit cap was a higher priority.
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Graduates who took out Plan 2 loans between 2012 and 2023 are charged interest at the retail price index (RPI) plus up to 3 per cent. Reeves has frozen the salary threshold for repayments until 2030.
Maintenance grants were scrapped in favour of loans in 2017 under Theresa May, which added to the financial burden, but the repayment threshold rose to protect lower-earning graduates. This has now been frozen, meaning more people are repaying earlier in their careers. Some graduates say their debt is growing by more than their repayments because of the high interest rate.
The Tory party said that its deal for young people would “end the burden of student loan debt far too many are now facing”. A spokesman said: “Too many young people have been sold a raw deal when going to university, ending up with high debt and poor prospects. The system urgently needs reform. Even those who manage to get well-paying jobs are often unable to pay off their loans.
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“Graduates have to earn £66,000, nearly twice the average salary, to be able to pay their loans off. Hard-working young professionals despair at seeing their debt increase every year, even as deductions take cash from their strained payslips.
“We are the only party to have set out a fully funded plan to fix this – ending the rip-off of Plan 2 and doubling apprenticeships by scrapping low value university degree courses that end up costing the taxpayer and leave young people saddled with debt and minimal job prospects.”
The spokesman accused Reeves of economic mismanagement and exacerbating the problem by freezing the thresholds.
The biggest student debt revealed — one graduate owes £314,000
Laura Trott, the shadow education secretary, said: “Plan 2 student loans are delivering a raw deal for young people and punishing aspiration. As with everything Rachel Reeves touches she makes it worse, her choice to freeze the repayment thresholds has left young people paying more, sooner.
“It is demoralising for young people that as they work harder all they see is their debt climbing. This is not fair.”
The motion will call for the government to set the interest rate on Plan 2 loans at a level that ensures balances will never rise faster than RPI inflation. It will demand the end of the freeze on repayment thresholds, and more apprenticeships by controlling the number of places on university courses “where the benefits are outweighed by the cost to graduates and taxpayers”.
Reeves said on Tuesday that changing the system was not “front of the queue” of political priorities.
Answering questions after giving the Mais Lecture at Bayes Business School, she said: “Yes, the student loan system is broken.” What she said was “more broken”, however, was that one in six young people were not in education, employment or training. She added: “So, yes, we want to fix it. Yes, we want to make improvements. But is it front of the queue? No, it’s not.”
Reducing hospital waiting lists and lifting children out of poverty by removing the two-child benefit cap was more important, she suggested, adding: “Politics is about priorities. I’m not denying there is a problem. I’m not blind to that, but what I do say is there has to be some patience. We can’t fix everything straight away.
“If you say to me, ‘you shouldn’t have done child poverty and you should have reformed the student loan system’, I just strongly disagree with that.”