Assembly opposes decision to freeze threshold for student loan repayments

The London Assembly has today announced its opposition to the Chancellor's decision to freeze the salary threshold for Plan 2 student loan repayments for three years. 

The Institute for Fiscal Studies estimates that the average Plan 2 Graduate needs to earn £66,000 a year, just to keep pace with the interest on their loan. 

As a result, Plan 2 loan graduates have seen the balance they owe rise for years and they now owe more than when they graduated, despite making repayments in every payslip. 

Even Money Saving Expert, Martin Lewis called the Chancellor's decision to freeze the threshold 'not moral'.

The Assembly is calling on the government to abolish real interest rates on Plan 2 student loans, and for the Mayor to publicly support the proposal.

Emma Best AM, who proposed the motion, said:

“Plan 2 student loans were taken out with expectations that the Government would uphold their end of the agreement. 

“The Government, by freezing the thresholds for repayment, has breached that agreement and it is graduates who will pay the price. 

“Today the London Assembly has supported my motion calling on the Government to abolish the above-inflation interest rates on these loans, to help graduates escape this financial prison.”

The full text of the motion is:

This Assembly wishes to express its opposition to the Chancellor's decision in the Budget to freeze the salary threshold for Plan 2 student loan repayments for three years. 

Of the 5.8 million people who took out a student loan between September 2012 and July 2023, a significant number live and work in London. These Londoners contribute a substantial amount of tax revenue to the Exchequer, with many hard working middle and higher-earning graduates already facing a 50% marginal tax rate. 

The Institute for Fiscal Studies estimates that the average Plan 2 Graduate needs to earn £66,000 a year just to keep pace with the interest on their loan. As a result, Plan 2 loan graduates have seen the balance they owe rise for years and now owe more than when they graduated, despite making repayments in every payslip. 

This Assembly notes that the Plan 2 students loan system was brought in by the Coalition Government in 2012, following their decision to treble the cost of higher education, by increasing tuition fees to £9000 per year.

The Assembly also notes that by linking the interest rate to inflation, the high inflation experienced under the previous Government significantly increased the interested rate being charged on Plan 2 student loans.

The Government's decision to freeze the salary threshold for repayments is fundamentally unfair, punishes hard-working young people, and is clearly contrary to how the Plan 2 system was designed when it was introduced. 

The Assembly wishes to note Martin Lewis' comments that the Chancellor's decision to freeze the threshold is 'not moral'. 

The Assembly, therefore, calls on: 

• The Government to abolish real interest rates on Plan 2 Student Loans, ensuring balances will never rise faster than RPI inflation and saving graduates thousands of pounds over the 30 year repayment period. The Government should also explore additional ways to make the Plan 2 student loans system more progressive.
• The Mayor to publicly support this proposal, and recognise the tax contributions made by Plan 2 graduates living and working in London.

The meeting can be viewed via webcast or YouTube.

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