Andy Burnham’s Team Mulls Over Student-Loan Overhaul

The Labour government is weighing several changes. The repayment threshold for Plan 2 loans could rise to £29,385 from April 2026 and stay at that level until 2030. James Purnell, Burnham’s chief of staff, has floated a graduate-tax model—3 % on earnings £12,570-£50,270 and 5.5 % above £50,270, payable until retirement. He also proposes a stepped repayment system: 3 % on £12,570-£27,570, 6 % on £27,571-£57,570, and 3 % above £57,571, with interest set at inflation + 0-3 % depending on income band and a 30-year repayment term. Reducing the Plan 2 interest rate to Retail Prices Index (RPI) (removing the extra 3 % premium) and cutting the overall repayment rate from 9 % to 4.5 % (or a tiered 4.5 %/9 % structure) are also on the table.

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Raising the threshold would save graduates an average £260 a year, according to the Institute for Fiscal Studies; the Institute for Public Policy Research estimates £55 saved for earners £30,000 and £170 for earners £40,000. The graduate-tax model would cost the Treasury nothing to implement, while the stepped system could save £841 million per cohort (Purnell’s estimate). Cutting the interest rate to RPI could lower lifetime repayments for the 2022-23 cohort by about £11,000, saving the top 30 % of earners more than £20,000 (IFS). That change would cost roughly £4 billion in today’s prices. Reducing the repayment rate to 4.5 % would cost £5.8 billion by 2026-27, giving a £519 annual saving to a £40,000 earner and £3,219 to a £100,000 earner (Institute for Public Policy Research).

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Deputy Prime Minister Andy Burnham is leading the review; his 2015 leadership platform pledged a graduate tax. James Purnell, former University of the Arts London (UAL) vice-chancellor, is championing both the tax and the stepped scheme. Education Secretary Lucy Powell has called the “plus 3 percent” interest on Plan 2 loans “endless and unfair.” Economic adviser Carys Roberts, formerly of the IPPR, is reported to oppose interest-rate cuts, arguing they mainly benefit higher earners.

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For an average salary of £39,039, the graduate-tax proposal would lower monthly payments from £68 to £66, while the stepped system would raise them to £95 (estimates by The i Paper). Lower-income graduates would see reduced rates and interest, and the Treasury savings could allow maintenance grants to be reinstated.

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