Kemi Badenoch has said the Conservatives would scrap the “unfair debt trap” of high interest rates on student loans, piling pressure on Labour ministers to tackle the growing outrage over the high costs.
The education secretary, Bridget Phillipson, admitted the system of plan 2 loans had “problems” but suggested the government’s priority would be maintenance grants for poorer students, rather than tackling the high interest rates.
“The reality is that we inherited a system, and the Conservatives left behind this system, the system they’re now complaining about. But it does have problems, it does,” she told the BBC. “But there are also problems when you seek to make changes happen.”
The Tories said they would abolish real interest rates on plan 2 student loans, which can mean graduates pay tens of thousands more than they borrowed to fund university fees.
The shadow education secretary, Laura Trott, said the loans should not rise faster than RPI inflation, a move which would cut the size of the loans for millions of graduates who started courses after 2013.
She said the change would be funded by cutting tens of thousands of university courses that do not provide “value for money” for students.
“Britain’s young people are facing a worse deal under Labour,” Badenoch, the Tory leader, said.
“Youth unemployment is at its highest level in a decade, graduate recruitment is at the lowest level on record, and too many are going straight from education to welfare.
“Leaving university has become a moment of despair. Not just for young people but their parents too.
“In particular, the plan 2 student loans are an unfair debt trap: millions of graduates are doing the right thing, paying every month, yet watching the balance they owe growing bigger because interest piles on faster than repayments.
“If Labour had any sense, Rachel Reeves would act now and use her spring statement to adopt this plan.”
The row over the cost of student loans has escalated since the chancellor’s decision last November to freeze the salary threshold for plan 2 student loan repayments for three years.
Recently, the Labour MP Nadia Whittome said she had left university in 2019 with £49,600 of debt and her repayments had shaved just £1,000 off that, despite her earning in the top 5% of salaries as an MP.
“If MPs are barely making a dent in their student loan debt after six years of repayments, what chance do other graduates have?” she said.
Phillipson said the salary threshold for repayments would be frozen in the coming years, bringing more graduates into having to repay their debt.
“This is a system that developed over many, many years, came in in 2012-13, was not a system that we designed.
“There are flaws in that system, I’d be the first to admit it, but it is galling that the very people that designed, implemented and delivered that system are now complaining about the fundamental problems that they see within it, and alongside that, I would add, are now saying that university is not for some young people.
“Always coming from people, by the way, who went and had the benefits of a university education and want to deny it to other young people.”
Trott said there was a “a shift that needs to happen in the system” and suggested creative arts courses were an example of those not providing value for money for students.
“I’m not going to come on here and say that this is not difficult, but I think it’s the right thing for young people.
“It would mean that instead of going into one of these university courses, which has a negative outcome for them, they could go into an amazing apprenticeship where they’re going to come out with no debt whatsoever, and they’re going to come out with great job prospects. I think that is a better trade.”
The Treasury minister Torsten Bell said such a policy would have a catastrophic effect on universities.
“Nothing about what would deliver the supposed 100k cut in student numbers in here, unless this is a hard commitment to introduce a cap on student numbers well below current levels,” he posted on X. “In which case they may have just accidentally announced they’d close a chunk of universities.”
A source close to the shadow chancellor, Mel Stride, said the Conservative party wanted to put a longer-term focus on rebalancing the economy, especially towards young people and those paying outsized marginal tax rates.
“There is a palpable sense of unfairness – and even despair – among some people that they’ve done all the right things and are getting screwed,” the source said.
“People who went to uni, got a decent job and find themselves with sometimes ridiculously high marginal tax rates. They’re paying eye-watering interest on their student loans to subsidise others doing low-quality degrees who will never repay.
“It ends up being not just unfair but really bad economics too – people start to think: ‘What’s the point?’ We have to give people some hope.”
