Student Finance: the next PPI-style scandal?

[brad465]

This is an issue that has gained traction in 2026 so far, and given it transcended multiple governments and authorities I think warrants its own discussion.

Plan 2 loans are in the spotlight in light of the problems the T&Cs are causing, in particular the interest accrued and how repayments are made. I'm on one of these plans and even though my line of work is related to my degree, I've been getting buyer's remorse recently over the matter, wondering if I could have achieved a similar career path with an alternative qualification and much less debt. At the moment my salary is not enough to cause major concern, but if I was promoted another level or two in my organisation, this could be a problem, and a number of earners above £50kpa are being burdened by this, all while not really paying off debt because of the high interest charged. While the 30-year write off is a good condition, this is a long way off and shackles workers in the prime of their career.

A BBC report today is putting a spotlight on how the loans were sold to prospective students, highlighting how even the salesmen/women who promoted the loans back in the 2010s feel like they were conned:

'Misleading' school talks compared student loans to £30 phone contracts

Graduates hired to deliver the presentations a decade ago were told to avoid using words like "debt".

www.bbc.co.uk

The government compared student loan repayments to a £30-a-month phone contract in a presentation to teenagers a decade ago, BBC News has discovered.
The presentation was part of a series of "student finance tours" delivered to thousands of schools between 2011 and 2017, by graduates who were asked to speak to pupils and parents on the then-government's behalf.
The graduates were told to "avoid words [or] phrases like debt", with one former presenter now telling the BBC he felt like he had "sold his soul to the devil".
The Department for Education (DfE) said the presentations were delivered under previous governments, and that current ministers had focused on making the system fairer.

One script from 2016-17, seen by the BBC, stresses that applicants should do their research and tells them where to find further information. Where possible, graduates took questions after the presentation and the script refers to an accompanying leaflet, which the BBC has not seen.

However, the BBC has spoken to former presenters and interviewed two who say they feel the implications of taking out a loan were downplayed.

The revelations come as the government faces mounting pressure to change the repayment terms of Plan 2 student loans, which were issued in England between September 2012 and July 2023 and are still issued in Wales.

Last week, Prime Minister Sir Keir Starmer said he would "look at ways" to make them "fairer".

Ed, who was among the 2016 presenters, said he felt he was helping those who were thinking about going to university at the time, but now feels one part of the script in particular seemed like a "sales tactic".

In a section explaining that graduates would repay 9% of anything they earned above the repayment threshold, which was £21,000 at the time, it gives an example of someone earning £25,000.

"You'll pay 9% of £4,000. In case you're wondering, that works out at just under £7 a week – or just under £30 a month," it reads.

"I don't know about you but my phone contract costs about that which might help to put things into a context and point out that the monthly repayments are entirely affordable."
The National Union of Students said the script for the presentation about Plan 2 loans - which have been heavily criticised this year over their high interest rates and changes to the repayment thresholds - had "aged poorly" and was "deeply misleading".
According to a government contract with Event Marketing Solutions (EMS) - a private company that hired graduates and delivered tours - the aim was to "convert" young people from disadvantaged backgrounds into "actual [higher education] applicants".
The BBC understands that the presentation, script and notes would have been either provided or approved by the Department for Education.

I think the current government are not handling this well so far, however they are also stuck between a rock and a hard place on this, as any major changes to the policy risks public finance shocks. What I think should be done if possible, is make the loans interest-free, and maybe even go as far as writing off all the debt that is purely previous accrued interest. The argument being that higher earners already pay higher tax volumes, so in theory this is their "loan interest", then there is a realistic chance of more graduates paying off the loan before the 30-year write off. However, retrospective changes to T&Cs, even where favourable for the indebted individual, could encounter some legal challenges.

 

[DarloRich]

What I think should be done if possible, is make the loans interest-free, and maybe even go as far as writing off all the debt that is purely previous accrued interest.

no one paid my student loan debt off but me. However I was on the VERY old system so cant really complain.

 

[Tetchytyke]

I think the current government are not handling this well so far, however they are also stuck between a rock and a hard place on this, as any major changes to the policy risks public finance shocks.

This has been an issue for 14 years, ever since the Tories brought these loans in. I can't help but wonder why it is suddenly an issue now.

For what it is worth, way back in 2012 when I was working in the student money advice sector we did describe these loans as being very similar to a graduate tax. Because that is, effectively, what they are. You pay 9% of what you earn, over a certain threshold. Doesn't matter how much you owe or what the interest rate is, you pay 9%. And after 30 years anything you have not repaid is written off.

The trouble is, people see the interest rocketing up far faster than they are repaying and panic. I totally get why, it is soul-destroying to get a loan statement which shows the amount you have to repay is bigger than it was a year ago, even after paying 9% of your wages into it. But for most people it simply doesn't matter. The interest rate could be a billion percent and it wouldn't matter- they're just numbers on a page.

There is unfairness in the system but, noting this is a Conservative plan, the unfairness is stacked against the highest earners, the ones who will repay their loan in full. They are the ones who get charged a higher interest rate and they are the ones who will have to pay for that higher interest rate in full.

 

[DarloRich]

I can't help but wonder why it is suddenly an issue now.

snap!

 

[Ediswan]

I can't help but wonder why it is suddenly an issue now.

The current attention started with the government decision not to increase the repayment threshold (to reflect inflation).

 

[Snow1964]

I can't help but wonder why it is suddenly an issue now.

The interest is based on RPI+3%, and huge interest difference between plans, and freezing of repayment threshold

Government has dropped RPI for nearly everything else, CPI has been primary inflation indicator since 2023, but student loans are being hit with silly interest due to applying obsolete (RPI basis) formula

CPI (official inflation) is 3.0%
Bank of England interest rate 3.75%

Student loan, plan 2 interest rate 6.2%
Student loan, plan 1 interest rate 3.2%

 

[Crithylum]

If I were the government, I would keep everyone’s current balance, but lower the interest rate to either CPI (without the +3%) or something lower. The majority will still have it written off after 30 years, and it avoids the attention grabbing headline interest rates.

Note: if someone is getting it written off after 30 years, it doesn’t matter whether it was zero interest or a million percent, they just pay 9% of earnings above x for 30 years, so it won’t cost the government much money in the long run (although it will temporarily deflate their “assets”)

 

[Lampshade]

Government has dropped RPI for nearly everything else, CPI has been primary inflation indicator since 2023...

Only so the Tories could hide (or try to hide) the extent of the inflation at the time; would they have changed it if Ukraine (and Truss!) hadn't happened?

 

[styles]

The interest is based on RPI+3%, and huge interest difference between plans, and freezing of repayment threshold

Government has dropped RPI for nearly everything else

Well, not quite true. Rail fare increases have been based on RPI for years. Rail unions like RMT have for a long time even argued in favour of using RPI because it justifies rail salary increases using RPI also.

Every rental contract I've had has used RPI as a measure for rent increases.

It's still very much used, whenever the person writing the contract wants an advantage, basically, as they know full well that RPI is an outdated measure but will deliver them greater returns.

CPI has been primary inflation indicator since 2023, but student loans are being hit with silly interest due to applying obsolete (RPI basis) formula

CPI (official inflation) is 3.0%
Bank of England interest rate 3.75%

Student loan, plan 2 interest rate 6.2%
Student loan, plan 1 interest rate 3.2%

Worth noting that the issue here is less about RPI vs CPI and more about the interest rate algorithm.

Plan 1 loans have an interest rate of either RPI, or the BoE base rate + 1%, whichever is lower.

Plan 2 loans have an interest rate of between RPI, and RPI+3%, depending on whether currently studying, or if not studying then what level of qualifying income.

Thus, some people on plan 2 loans may pay 3.2%, exactly the same as those on plan 1 loans.

It isn't CPI vs RPI which makes the difference - it's the a) lack of 'whichever is lower of RPI or BoE BR+1%'; and the a) RPI + up to 3% extra.

I'm not saying RPI should be used, but it's not the cause of plan 2 loans being so obscene.

 

[Vexed]

Student loan, plan 2 interest rate 6.2%
Student loan, plan 1 interest rate 3.2%

Worth noting that the issue here is less about RPI vs CPI and more about the interest rate algorithm.

Plan 1 loans have an interest rate of either RPI, or the BoE base rate + 1%, whichever is lower.

Plan 2 loans have an interest rate of between RPI, and RPI+3%, depending on whether currently studying, or if not studying then what level of qualifying income.

Thus, some people on plan 2 loans may pay 3.2%, exactly the same as those on plan 1 loans.

With Plan 5 loans, which I am lucky (ish) to be studying under right now it's back to just RPI with none of this silly RPI + up to 3%. So almost as good as Plan 1. I do feel for the unlucky grads with a Plan 2 loan while students before and after then don't have anyting on top of RPI.

The disadvantages of the Plan 5 loans compared to Plan 2 is the lower repayment threshold at £25,000 (excluding postgrad loans) and 40 year repayment period instead of 30, meaning higher repayments for longer until the loan gets paid off or written off - for me this would be in 2069! The 30/40 year countdown only starts in the April after graduation, so for most people graduating in June they will repay for closer to 31 or 41 years. I expect to have at least £85k in debt upon graduation as I am taking tuiton loan plus full maintenance loan for a 4 year masters course. Most people leave with less than this.

I don't think it's a scandal, just that inflation running high combined with the +3% interest has made this notable. And there is variable finantial literacy taught in secondary schools and sixth form/colleges so I expect loads of students went into the loan not properly understanding it.

If I were the government, I would keep everyone’s current balance, but lower the interest rate to either CPI (without the +3%) or something lower. The majority will still have it written off after 30 years, and it avoids the attention grabbing headline interest rates.

I agree, limiting Plan 2 loans to CPI is probably the best outcome I'd reasonably expect.

 

[Kite159]

In an ideal world, the interest charged for student loans should be either CPI or RPI with nothing added, maybe even with no interest charged for those earning below the threshold.

After-all the 'debt' is written off after 30 (?) years, so charging high interest just creates a cycle where for those who are just above the threshold to pay back the loan, the amount they are paying doesn't touch the actual loan element, just the interest.

Yes it will benefit those who manage to get themselves a job paying £40K+ who might actually pay the loan off quicker if the interest wasn't so high

(I've put debt in quotation marks, as it's debt but not actual debt in terms of appearing on credit files etc)

 

[Lewisham2221]

(I've put debt in quotation marks, as it's debt but not actual debt in terms of appearing on credit files etc)

I do wonder if some of the relatively recent concern about student loans in the UK stems from a misunderstanding of this? I understand that US student loans do affect credit files, I wonder if social media is to blame for developing a much less warranted concern about UK student loans?

 

[Snow1964]

Martin Lewis, commented about this on one of his features on student loans few months back. With plan 2 the way the interest rate is set, and Government freezing start threshold instead of it rising with inflation means that clearing it will not happen for 80-90% of loans

Basically said, only those with jobs paying over about 70k are likely to pay them off, so if earn less don't overpay, because wasting money as balance is written off after 30 years. (latest plan loans are 40 years).

In practical terms repayments are more like a 9% supplementary tax on earnings over £28k.

So if Government is expected to write off the balances at 30 years, it is just doing an accounting sleight of hand by saying it cannot afford to change the terms. Especially as good accounting practice to to make provisions for possible bad debts and expected write offs. If the remainder is only settled at 30 years (the cash flow part) doesn't really make any difference if add extra interest along the way that then zero later.

 

[bluenoxid]

The plan 2 cohort is forming into an electoral force and there are anxious current members of coalition parties getting quite concerned that this cohort won’t turn into future voters of the respective parties in 2029. It’s easy to blame Labour for not doing anything now but you can’t remove the fact that your predecessors introduced it. The eldest members of this cohort will be 35 in 2029.

 

[styles]

I do wonder if some of the relatively recent concern about student loans in the UK stems from a misunderstanding of this? I understand that US student loans do affect credit files, I wonder if social media is to blame for developing a much less warranted concern about UK student loans?

I don't think the concern is recent really. The likes of Martin Lewis and NUS have campaigned for many years on the unfair loan terms (retrospective changes) and how it's all a bit of an illusion when the RAB charge % remains the same but you lend triple the money out just means writing off triple the money as well.

== Doublepost prevention - post automatically merged: 4 Mar 2026 ==

The plan 2 cohort is forming into an electoral force and there are anxious current members of coalition parties getting quite concerned that this cohort won’t turn into future voters of the respective parties in 2029. It’s easy to blame Labour for not doing anything now but you can’t remove the fact that your predecessors introduced it. The eldest members of this cohort will be 35 in 2029.

Well, it'll be an uphill battle for the Lib Dems if they try campaigning on this issue again!

 

[Robin Edwards]

snap!

It's been an issue for a long time but media have not been listening.

Paying a good price for a good education is not the issue. Being charged an extortionate amount of interest on the debt is the scam.

One of my daughters just finished a year's maternity leave which the government obviously support - yet her outstanding loan has now moved to a bigger number than when she started out. If you incurred Plan2 debts for a 3/4 year course with added mtce loans, the salary you would need to earn to pay off that debt within ten years is way more than most would imagine. She earns £60K pa atm and isn't touching the debt which as things stand, will become a working-life tax burden.

 

[DarloRich]

Being charged an extortionate amount of interest on the debt is the scam.

There is an alternative: work and pay your way through uni. Many do. ( Even with my loan I had to work through university to make sure I had money for important things like beer! )

There was no family money to support me. I had to get a loan. I read and understood the terms. I paid it. it was painful. Yes, my terms were different but the pain was still the same when you are trying to start out in life on a fairly low wage. I get it. I have been there. You cant see the end of it and it can be quite depressing. However you have to enter into these obligations knowing the score and the implications and sometimes those implications might be negative if rates or the economy changes.

I might have some sympathy if there is proof of some miss selling but even then people going to university are of at least moderate intelligence and to believe a student loan is like a phone contract is preposterous. I wouldn't have believed that as a 17/18 year old.

BTW I don't even earn £60k a year many years after university. That seems like a decent wage to me. It took a lot more than 10 years to pay off my student loan. I didn't earn enough ( sometimes by choice) to start paying it back which meant, naturally, the bill went up. OF COURSE the terms were different but the point holds.

 

[Robin Edwards]

There is an alternative: work and pay your way through uni. Many do. ( Even with my loan I had to work through university to make sure I had money for important things like beer! )

There was no family money to support me. I had to get a loan. I read and understood the terms. I paid it. it was painful. Yes, my terms were different but the pain was still the same when you are trying to start out in life on a fairly low wage. I get it. I have been there. You cant see the end of it and it can be quite depressing. However you have to enter into these obligations knowing the score and the implications and sometimes those implications might be negative if rates or the economy changes.

I might have some sympathy if there is proof of some miss selling but even then people going to university are of at least moderate intelligence and to believe a student loan is like a phone contract is preposterous. I wouldn't have believed that as a 17/18 year old.

BTW I don't even earn £60k a year many years after university. That seems like a decent wage to me. It took a lot more than 10 years to pay off my student loan. I didn't earn enough ( sometimes by choice) to start paying it back which meant, naturally, the bill went up. OF COURSE the terms were different but the point holds.

My children worked throughout their university education - thanks for reminding me Rich. When exactly was your experience though and how much were the interest payments in your day?

The point here is that despite a very good income as you agree, well above the national average, the debt charged at source beyond threshold increases over time whereby the debt can not be cleared in decades of paying.

The scam here is that government sold out student debt and added +3% extra interest - do the maths Rich and see how much you would need to earn to pay off within ten years - and I'll even allow you a few quid for beer along the way!

 

[DarloRich]

when exactly was your experience though and how much were the interest payments in your day?

Not recently ( sigh - I am getting old ) and the interest rate was a lot lower. I understand it is a very different world today.

I am absolutely not saying it is easy or even fair. It is hard. Trust me, I know, but it is just one of the consequences of choices in life. The result is the £60k p/a salary and, I hope, an expectation of more as a career grows.

 

[class442]

At the moment my salary is not enough to cause major concern, but if I was promoted another level or two in my organisation, this could be a problem, and a number of earners above £50kpa are being burdened by this, all while not really paying off debt because of the high interest charged.

To be clear, when you say it could be a problem, you mean having the repayments taken from your pay packet?

I'm also on Plan 2. I currently pay £15 a month towards it on each payslip, which I don't think is ever going to make a dent in my balance (which I haven't checked since finishing university.)
I do appreciate that if I earnt an extra e.g. £10k pre-tax, then £900 of it would be taken for the repayments, but after other deductions I would still receive a £6-7k increase in my take home. At the end of the day, to me that's still an increase, not a burden...

I think a lot of other costs in life are more burden-esque than the repayments are (energy, childcare, rent, insurance, food etc etc).

If I were the government, I would keep everyone’s current balance, but lower the interest rate to either CPI (without the +3%) or something lower. The majority will still have it written off after 30 years, and it avoids the attention grabbing headline interest rates.

I agree that this would be a good move. I wonder how much this would actually cost the government in income.

On the other hand, would it be a big enough gesture to be worth it politically? As it wouldn't make a difference to many people's repayments until potentially decades away.

 

[brad465]

MPs (on the Treasury Select Committee) have now launched an inquiry into the whole student loans' fiasco:

Student loans inquiry to look at whether system is 'unfair'

The Treasury Committee will look at whether "the goalposts [have] been moved in a way which is unfair".

www.bbc.co.uk

MPs have launched an inquiry into student loans in England amid "widespread dissatisfaction" over repayment terms.
The Treasury Committee will examine whether the recent decision to freeze the repayment threshold for many graduates is fair.
The inquiry will also look at whether repayment terms are "reasonable" when considered alongside the "broader taxation of graduates" such as income tax.
The Department for Education (DfE) said the freezes aimed to "protect taxpayers and students".
The inquiry will look at all student loan plans but the recent controversy has surrounded Plan 2 loans, which were issued in England between September 2012 and July 2023 and are still issued in Wales.
Graduates with Plan 2 loans pay back 9% of everything they earn over the repayment threshold. The Chancellor Rachel Reeves announced in November's budget the threshold would be frozen at £29,385 between 2027 and 2030, rather than rising with inflation.
That means graduates will start repaying sooner and those earning above the threshold will see a greater proportion of their salary subjected to student loan repayments than they would have done.
Campaigners have called for the freezes to be reversed, as well as a lower repayment rate and a lower interest rate - which is currently the Retail Prices Index (RPI) measure of inflation for graduates plus up to 3% depending on earnings.

Dame Meg Hillier, chair of the Treasury Committee, said many people had benefited from widened access to higher education through the student loan system, but the inquiry would ask whether "the goalposts [have] been moved in a way which is unfair to graduates".

"Upward interest rates and sometimes particularly high marginal tax rates have clearly led to widespread dissatisfaction among graduates who may not have fully understood their repayment terms and the possibility they could change," she said.

"There are questions over whether decisions such as freezing the threshold for repayments is placing the burden unfairly on younger people."

Natalie Whittaker, 27, doesn't regret going to university but feels she was not "properly informed" about the financial ramifications of taking out a Plan 2 loan.

Select Committees are usually good at uncovering problems I think, however they are toothless in terms of power and influence over a sitting government, so I suspect not much will come from it, unless widespread civil unrest over the issues forces their hand (which given our tolerant society, won't happen).