A committee of Members of Parliament (MPs) in the United Kingdom (UK) has launched an inquiry into the student loan system to examine whether it is fair for graduates, amid growing criticism of repayment terms and interest rates.

The investigation, announced by the UK Treasury Committee, will look at the structure of student loans, particularly the controversial “plan 2” loans taken by students who attended university between 2012 and 2023.

The cross-party group said the inquiry was prompted by widespread dissatisfaction among borrowers and follows a decision by Chancellor Rachel Reeves to freeze repayment thresholds from next year.

The move has intensified pressure on the government to address the financial burden facing millions of graduates.

“This inquiry is about fairness,” said Labour MP and committee chair, Dame Meg Hillier.

“Fundamentally, what we’re asking is: have the goalposts been moved in a way which is unfair to graduates?”

However, debate around plan 2 student loans has intensified since Reeves’ budget announcement in November last year.

These loans are considered particularly controversial because of their interest rates and the amount many students graduate owing.

According to the Institute for Fiscal Studies (IFS), students under the plan 2 system now leave university with more than £50,000 in debt on average.

Graduates repay 9% of their monthly earnings once their salary exceeds the £28,470 threshold. Interest is then added at the Retail Price Index (RPI) rate of inflation plus roughly 3%, meaning many borrowers see their debt grow even while making regular repayments.

The government plans to raise the repayment threshold next month and then freeze it for three years, a decision that has drawn criticism from some Labour MPs and graduates who want the freeze reversed.

One Labour MP who wants the system changed said:

“With 10 million people set to have student debt by the next general election, easing the burden for young professionals needs to be made a priority and treated with the urgency it deserves.

“Under the previous government, young people were often the last to feel the benefits and the first to feel the brunt of policy decisions – this government now has the opportunity to break this pattern.”

Another Labour MP, who also has a plan 2 loan, told Sky News that some MPs are pushing internally for reforms that would not increase government spending.

Several organisations have suggested possible reforms, including reducing the repayment rate from 9% to 6% and extending the repayment period from 30 to 39 years.

However, when questioned by the committee on Tuesday, Reeves appeared cautious about introducing quick changes, although she acknowledged the government “inherited a broken system”.

“The truth is, we can’t do everything straight away,” Ms Reeves said.

“I do believe the priorities of investing in the NHS and in defence, but also in the most recent spring forecast to put aside much-needed money for SEND, are the right policies and the right approach.”

The government has already announced some adjustments, including the reintroduction of means-tested maintenance grants from the 2028/2029 academic year, and officials are understood to be reviewing other possible reforms.

Reeves also said efforts to reduce inflation and interest rates would help ease the repayment burden on graduates.

“But Ms Reeves added: “Any change we make has to be fully costed and fully funded.”

personal finance expert Martin Lewis has also weighed in on the debate, arguing that lowering interest rates would mainly benefit graduates able to repay their loans within 30 years. Instead, he has suggested increasing repayment thresholds to support lower and middle-income earners.

Meanwhile, the National Union of Students (NUS) welcomed the parliamentary inquiry.

NUS president Amira Campbell said:

“This parliamentary inquiry is the clear result of sustained pressure from students and graduates.

“The Treasury Committee is showing the leadership that students, graduates, and young people need from the chancellor, and at NUS we are ready to take this opportunity to work together to fix student loans now.”

The inquiry will accept evidence until 14 April and will examine issues including student loan interest rates, how they are set, and whether governments should be able to change loan terms after they have been introduced. (Vanguard)