Graduates saddled with ballooning student loan debts feel they are being unfairly used as “cash cows” to fund the state pension triple lock, MPs have been told, as the Commons Treasury select committee heard evidence of an “intergenerational crisis” driven by frozen repayment thresholds and soaring interest charges.
Ollie Gardner, founder of the graduate campaign group Rethink Repayment, told the committee that figures showed the triple lock – which guarantees the state pension rises by the highest of inflation, average wage growth or 2.5% – is forecast to cost the government £15bn a year by 2030. “To see graduates being the mechanism to generate more tax revenue … I think lots of people feel very, very angry about that,” he said. Gardner gave the example of a 33-year-old NHS doctor about to become a consultant who had already seen £38,000 in interest added to their student loan and expected to repay between two and two-and-a-half times what they originally borrowed. “To see Rachel Reeves or previous governments freezing the thresholds makes it feel a lot like we’re being used as cash cows,” he added.
At the centre of the dispute is the “plan 2” loan system, introduced for undergraduates in England and Wales who started courses between September 2012 and July 2023. Borrowers repay 9% of their income above a set threshold, but the interest applied to their loans often dwarfs these repayments, causing total debt to grow even as money is taken from wages each month. The interest rate is typically set at RPI inflation plus 3% while studying, then varies between RPI and RPI plus 3% depending on income after graduation, though the government recently announced a cap of 6% from September 2026.
How interest makes debts balloon
The scale of the problem is stark. In the 2024-25 academic year, £12.6bn in interest was added to student loans in England, while only £2.8bn was repaid. The average debt for graduates in 2024 stood at £53,000, with more than 2.8 million graduates owing at least £50,000. Some debts have swelled beyond £100,000 and even £300,000. Gardner described the situation as “an intergenerational crisis”, arguing that the system is a “stealth tax on graduates” that prevents young people from reaching key life milestones such as buying a home, starting a family or saving for retirement.
The immediate trigger for the latest row was Chancellor Rachel Reeves’s decision in the Budget to freeze the salary threshold at which plan 2 loan repayments kick in. The threshold, above which graduates must repay 9% of anything they earn, will remain at £29,385 until 2030. This means that as wages rise, more graduates are pulled into the repayment net and those already repaying contribute a larger slice of their income. The Institute for Fiscal Studies has estimated that millions of plan 2 borrowers will each pay an extra £93 to £259 per year by 2029-30 as a result of the freeze. The policy is projected to generate an additional £7.4bn in revenue for the government by 2030-31.
‘Mis-selling’ comparisons and lack of transparency
Philip Augar, who led the 2019 government-commissioned review of post-18 education funding, told MPs the changes to loan terms were “almost sneaky” and compared the situation to the car finance and payment protection insurance (PPI) mis-selling scandals. “The plan 2 people signed up for terms and conditions that were not properly explained,” he said. Augar argued that a financial services organisation has a “duty of customer care” and that “that really ought to apply to government in the context of [these] loans.” He said there was “a moral issue” with retrospectively altering terms “bit by bit”. When asked if he would expect the Financial Conduct Authority to intervene if a bank sold a product in this way, Augar replied: “I’m thinking immediately of the car loans scheme or the payment protection insurance scandal, which produced exactly the outcome you’ve described, yes.”
The criticism is echoed by evidence that many borrowers did not understand what they were signing up for. A survey found that 57% of respondents did not understand the terms and conditions of their student loans before taking them out. Gardner warned that the financial burden is causing anxiety and despair, with some graduates believing they will never repay their loans and describing the system as a “tax on ambition”.
Government defence: inherited system and reforms
The government has defended its record, arguing that it inherited the current system and has taken steps to make it fairer. A government spokesperson told the committee last week: “We inherited the current system and have taken steps to make it fairer, including raising the repayment threshold for the first time since 2021 and capping maximum interest rates this year to protect graduates from rising costs.” The spokesperson added that the government had reintroduced targeted maintenance grants and said the system “protects lower-earning graduates”, with repayments linked to income and any outstanding balance and interest written off at the end of the loan term, typically after 30 years. The triple lock itself remains a cross-party commitment; both the Conservatives and Labour have pledged to maintain it, with the Conservatives previously proposing a “triple lock plus” on pensioners’ income tax allowance.
The Office for Budget Responsibility has highlighted the triple lock’s contribution to fiscal pressure, forecasting that state pension spending will rise to 7.7% of GDP by the early 2070s and cost £15.5bn a year by 2030 – three times its original estimate. Campaigners see a direct link between this growing cost and the decision to freeze student loan thresholds, a connection that fuels the perception of graduates as unwilling funders of older generations’ entitlements.
