UK Treasury minister Lucy Rigby has defended recent changes to student loans, asserting that the government has the right to alter terms because the loans are heavily subsidised and fundamentally different from commercial loans. Speaking to a committee of MPs, she argued that for most students, commercial loans are not an option due to lack of credit history or collateral, and that the government must balance fairness to taxpayers.
The debate centres on 'plan 2' loans held by millions of students from England and Wales. Many borrowers see their monthly repayments dwarfed by interest, causing debt to grow. The controversy was sparked by Chancellor Rachel Reeves' decision to freeze the salary threshold for plan 2 repayments for three years, alongside above-inflation interest rates.
Consumer campaigner Martin Lewis has criticised the changes, stating that altering loan terms would be illegal for commercial lenders under consumer law. However, Rigby told the Treasury select committee that student loans are a unique product, heavily subsidised, and thus the government retains the right to modify terms.
The committee is investigating student loans and graduate taxation. Last week, campaigners argued that graduates are being used as 'cash cows' to fund policies like the state pension triple lock. Philip Augar, who led the 2019 post-18 education review, compared the situation to car finance and PPI mis-selling scandals, but Skills Minister Jacqui Smith rejected that comparison.
Over 52,000 people responded to the committee's call for evidence, with many describing interest rates as 'extortionate' and higher than mortgage rates. Some complained that repayment thresholds were not rising with inflation as promised.
A government spokesperson said the system protects lower-earning graduates, with repayments linked to income and outstanding balances written off at the end of the loan term. They noted that the government has raised the repayment threshold for the first time since 2021 and capped maximum interest rates to protect graduates.
