Lucy Powell, the new Education Secretary, has criticized the student loan interest rate as excessive and in need of scrutiny. Prior to her appointment, Powell was a vocal opponent of the current system and now supports a review of the financial burden placed on students.

Under the current system, graduates who borrowed student loans between September 2012 and July 2023 must repay 9% of their income exceeding £29,385. However, government data suggests that only 55% of full-time undergraduates starting in 2025/26 will fully repay their loans.

In an interview with BBC Radio 5 Live, Powell described the student loan fees as a significant cost-of-living issue. She expressed concern about the high interest rate, which is currently set at RPI plus 3%, a figure she previously criticized as excessive. Powell emphasized the government’s commitment to reviewing the system, stating it is a top priority for her as Education Secretary.

Powell highlighted the importance of making the student loan system fair for students, noting that the current repayment structure leads many borrowers to make high payments without ever reducing the principal amount of their loans.

The former Chancellor, Rachel Reeves, faced criticism from the Commons Treasury committee for freezing the repayment threshold for three years in last year’s Budget. This freeze, now extended until 2030, contradicts the initial promise to adjust the threshold annually based on earnings when Plan 2 loans were introduced in 2010.

When asked about addressing this issue, Powell acknowledged the need for further examination, though she stopped short of making any promises. The National Union of Students previously criticized the government for treating students like “loan sharks,” burdening them with large debts that can be subject to sudden repayment changes.

Recent research revealed that half of graduates regret taking out student loans if given the chance to go back in time. Many students felt inadequately informed before taking out loans, with only 54% believing their university experience adequately prepared them for making significant financial decisions.