Student loans have recently featured in headlines. Find out what’s causing the debate, how your family might be affected, and some ways you could support students or graduates.
Amid growing backlash about student loans from graduates, the government has launched an inquiry. According to the BBC (12 March 2026), the Treasury Committee will look at whether the terms of student loans are “reasonable”.
The debate largely focuses on Plan 2 student loans
Plan 2 student loans were offered between 2012 and 2023. Under the terms of the plan, graduates pay back 9% of everything they earn above the repayment threshold, which is £28,470 a year in 2026/27. If the loan is not repaid within 30 years after the borrower was first due to repay, it is written off.
The current debate focuses on the interest added to Plan 2 student loans. Interest on Plan 2 loans is set at the rate of inflation, as measured by the Retail Prices Index (RPI), plus 3%, which is higher than that of other student loan plans. In 2026/27, Plan 2 loans are charged 6.2% interest, compared to 3.2% for graduates who took out a Plan 1 loan.
For some Plan 2 graduates, this means even when they’re making repayments, the total amount owed is increasing.
On 7th April 2026, the Government announced that they would be capping the maximum interest rates on Plan 2 and 3 student loans at 6% from 1 September, for the 2026/27 academic year. However, this is only a temporary cap for the next academic year and there is no suggestion that the inquiry will not take place.
Students who take out a Plan 5 student loan, which was introduced in 2023, benefit from a lower rate of interest than those on Plan 2. However, the threshold for repaying the loan is lower, at £25,000 in 2026/27, and the debt will not be written off until 40 years have passed.
So, while the focus is on Plan 2 loans, criticism of Plan 5 loans may also arise, particularly as students graduate and begin to make repayments.
There are several potential ways student loans might change
According to the Institute for Fiscal Studies (27 February 2026), several options are likely to be considered by the inquiry, including:
- The Conservative Party have proposed imposing a maximum interest rate to remove the above-RPI-inflation that is added to Plan 2 loans, and while this wouldn’t have an immediate effect on the repayments of most graduates, it could potentially reduce the total lifetime loan repayments.
- The Liberal Democrats have proposed increasing the repayment threshold every year in line with average earnings. This option could reduce repayments for some graduates, but it could also lead to higher outstanding balances.
- Campaign group Rethink Payments has proposed a much larger package of reforms, which could combine a lower rate of inflation, a higher repayment threshold, and a reduction in the repayment rate from 9% to 5%.
Remember, commentary on how student loan plans might change is just speculation at the moment. The inquiry could choose a different option or decide that no changes are necessary.
3 ways you could help your loved ones manage student loans
1. Explain the long-term impact of student loans to those considering them
One issue that the debate has raised is that some teenagers did not fully understand the financial consequences of taking out student loans.
Indeed, a BBC investigation (3 March 2026) suggests that talks in schools about student loans were “deeply misleading”. Presentations delivered in thousands of schools between 2011 and 2017 avoided words like “debt” and compared taking out a student loan to a £30-a-month phone contract.
The current discourse doesn’t mean that taking out a student loan to attend university is the “wrong” decision. However, it’s important that young people who are making these decisions understand the long-term financial commitment they’ll often be making.
If you have children or grandchildren who are thinking about taking out a student loan, discussing how it’ll affect their finances could be valuable and allow them to make an informed decision.
2. Offer financial support to graduates
When coupled with the rising cost of living, student loan repayments can affect the financial security of graduates and delay other milestones. For example, Barclays (23 March 2026) found that savers with student loans put away £2,000 less each year towards a house deposit than those without.
You might want to lend support to your loved ones who are struggling to manage student loan repayments alongside other expenses, either through regular or one-off gifts.
3. Build a nest egg to support loved ones going to university
Another option is to support students so they do not need to take out a student loan or can borrow less.
You might benefit from thinking about further education as early as possible. Regularly depositing into a savings account earmarked for the future from birth could lead to a sizeable nest egg by the time the child turns 18.
Please note: This article is for general information only and does not constitute advice. The information is aimed at individuals only.
