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No Budget Relief for Graduates as Student Loan Reform Remains on Hold
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Budget Outlook for Student Loans
Senior government sources tell i News that Chancellor John Healey is unlikely to announce any changes to the Plan 2 student-loan repayment threshold or interest rate when he delivers his Budget statement on 28 October. One source warned, “I would eat my hat if anything was in the Budget on this.” The Treasury is instead expected to outline a broader review of student finance at the next general election, leaving the current repayment framework unchanged for the coming year.
Background on Plan 2 Loans
Plan 2 loans cover English undergraduates who started between 2012 and 2023. Repayments begin once earnings exceed £29,385, with interest charged at the Retail Prices Index (RPI) plus up to 3 per cent, capped at 6 per cent for the 2026/27 academic year. The repayment threshold is set to be frozen in cash terms from 2027 to 2030, meaning a larger share of future earnings will be directed to loan repayment as wages rise.
Fiscal Constraints Shaping the Decision
The Institute for Fiscal Studies estimates that reducing Plan 2 interest to RPI-only would cost £4 billion for the 2022-23 entry cohort. Reversing the threshold freeze alone could cost the Treasury up to £10 billion over several years. Chancellor Healey faces a tight fiscal environment: soaring government borrowing costs have eroded the buffer left by former chancellor Rachel Reeves, and the conflict in the Middle East has halved the £24 billion headroom previously available. Officials are exploring higher taxes on banks, property and gambling firms, while Prime Minister Andy Burnham has signalled a desire to avoid steep tax rises after two record-raising budgets.
Official Statements & Responses
Burnham, speaking in New York, stressed the need to balance revenue generation with fiscal prudence, noting, “We have had two budgets in 2024 and 2025, and we have to be conscious of the extent to which we have raised revenue.” Treasury officials report that avoiding policies that stoke inflation and demonstrating a clear commitment to reducing borrowing are now higher priorities than expanding fiscal headroom.