Graduates feel like 'cash cows' funding pensions due to student loan changes, MPs told

Graduates saddled with ballooning student loan debts feel they are being unfairly used as “cash cows” to finance measures benefiting older people such as the state pension triple lock, MPs have been told.

Student representatives told an official inquiry about the “harrowing” plight of many young people, while the man who led the 2019 government review into post-18 education criticised the “almost sneaky” changes to loan terms, and appeared to compare the situation facing graduates with the car finance and payment protection insurance (PPI) mis-selling scandals.

Pressure has been building on the government in recent months to reform the student loans system, with campaigners and politicians queueing up to describe the rules as unfair.

The debate has focused on the millions of students from England and Wales who have taken out a “plan 2” loan. Many have money taken from their wages each month to repay their debt, but what they pay off is often dwarfed by the interest that is being added every month, so the sums they owe get bigger.

The catalyst for the latest row was Rachel Reeves’s decision to freeze the salary threshold for plan 2 loan repayments for three years. This threshold, above which graduates have to repay 9% of anything they earn, will now stay frozen at £29,385 until 2030. The above-inflation interest rates that apply to many loans have also come under fire.

As part of its own inquiry into student loans and the taxation of graduates, the Commons Treasury select committee took evidence from seven experts on Tuesday, including Ollie Gardner, the founder of Rethink Repayment, a graduate-led campaign for a “fairer” system, who described the current situation as “an intergenerational crisis”.

He gave the example of a 33-year-old NHS doctor who was about to be a consultant who had already had £38,000 of interest added to their student loan and was expecting to have to repay between two and two-and-a-half times the amount they originally borrowed.

He added: “To see Rachel Reeves or previous governments freezing the thresholds makes it feel a lot like we’re being used as cash cows.”

Gardner said figures showed that by 2030, the triple lock – which guarantees that the UK state pension will rise by whichever of three figures is the highest – was going to cost the government £15bn a year. He added: “To see graduates being the mechanism to generate more tax revenue … I think lots of people feel very, very angry about that.”

Philip Augar, who led the 2019 review of England’s higher education funding, told MPs: “I share the general outrage. The plan 2 people signed up for terms and conditions that were not properly explained.”

He added: “I think a financial services organisation has a duty of customer care … and that really ought to apply to government in the context of [these] loans.”

Augar said there was “a moral issue” here: “You shouldn’t be retrospectively changing the terms in quite a complicated, almost sneaky way, bit by bit.”

Asked if he would expect the Financial Conduct Authority to be “all over” a bank that sold a financial product in this way, Augar replied: “I’m thinking immediately of the car loans scheme or the payment protection insurance scandal, which produced exactly the outcome you’ve described, yes.”

Last week, in response to information published by the committee, a government spokesperson said: “We inherited the current system and have taken steps to make it fairer, including raising the repayment threshold for the first time since 2021 and capping maximum interest rates this year to protect graduates from rising costs.”

The spokesperson said that the government had reintroduced targeted maintenance grants, adding that the system “protects lower-earning graduates”, with repayments linked to income and any outstanding balance and interest written off at the end of the loan term.