The chancellor has promised to lower repayments on student loans by cutting inflation after graduates staged a protest outside Parliament demanding action on the soaring costs.
Rachel Reeves recently said the repayment system was “fair and reasonable,” but the National Union of Students (NUS) has labelled her a “student loan shark” in response to changes in the Budget, 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”.
Some students have told ITV News how their debt has grown by tens of thousands of pounds, despite them making regular repayments for many years.
Asked how the system was fair, the chancellor told ITV News on Thursday that she’d be able to reduce the interest on student debt by reducing inflation.
Watch: Reeves tells Reporter Lewis Denison how she aims to lower costs for graduates
She 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.
Reeves later insisted the system was “fair” and “reasonable” after criticism of the move.
Her stance has angered students and graduates, particularly because the Labour Party once promised to abolish tuition fees entirely if it got into government, before deciding the public finances were too tight.
NUS president Amira Campbell told ITV News the chancellor’s words showed she was “out of touch”.
‘I feel let down,’ NUS president says she’s disappointed by student loan changes
“I feel let down and I know loads of people feel let down. This is a Labour government that once promised the abolition of tuition fees and now we’re having to argue about the details of the terms that they keep changing around the student loan system, which is already regressive and exploitative,” Campbell said.
She added: “This government keeps on making it worse rather than better. It is shocking.”
When asked during an LBC phone-in whether she agreed with the chancellor’s assessment that the system is fair, Deputy Labour leader Powell said on Wednesday: “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.
“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 is particularly egregious, in my humble opinion.”
NUS president Ms 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?”
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