Student Loans: Review

Baroness Smith of Malvern Excerpts

Tuesday 24th February 2026 Lords Chamber

[Lord Young of Cookham]

To ask His Majesty’s Government what plans they have to review the student loans regime.

[The Minister of State, Department for Education and Department for Work and Pensions (Baroness Smith of Malvern) (Lab)]

My Lords, given the inherited fiscal situation, we are making tough but necessary decisions to protect both taxpayers and students. It is right that those who can afford to repay their student loans do so. The system remains heavily subsidised. Lower-earning graduates are always protected by the cancellation of any outstanding loan and interest at the end of their repayment term. The Government continuously review student finance to ensure that it remains fair, sustainable and supportive of students from all backgrounds.

[Lord Young of Cookham (Con)]

I am grateful for that. At the moment, a student leaving with an average debt of £53,000 has to earn £66,000 per year just to cover the interest on the debt. The deputy leader of the Labour Party recently described that as “egregious”. The Budget made the situation even worse by freezing the thresholds for students from 2027. A month ago, the Chancellor described the current regime as “fair and reasonable”, but not a lot of people agreed. Does the noble Baroness think the leader of the Opposition might be on the right track by suggesting capping loans at RPI?

[Baroness Smith of Malvern (Lab)]

I know the noble Lord would not want the suggestion to be made that the level of debt impacts on the amount anybody repays in any given month, because, of course, that is wrong. As I have already identified, the majority of students do not repay the whole of their loan, so they already receive a considerable subsidy from the state. I am sure there are noble Lords in this House who feel slightly aggrieved about being accused, as the leader of the Opposition did, of presiding over a scam in developing the current plan 2 student loan system, but it is important that we maintain the protection for students and graduates that the student loan system creates while being open to thinking about how we can mitigate its burdens on students and those who are repaying their student finance.

[Baroness Smith of Llanfaes (PC)]

My Lords, what assessment have the Government made of how the increasing burden of student debt will influence young people’s decisions not to go to university, particularly for young people in regions of the UK where average salaries are really low? Are we going back to a situation where attending university will be just for the wealthy?

[Baroness Smith of Malvern (Lab)]

No we are not, and nor should we, which is why we have made increasing access and participation a major pillar of our reforms of higher education. Despite the student loan system, we have seen an increase in the numbers of young people going to university. We now need to close the gap between those who come from advantaged backgrounds and those who come from disadvantaged backgrounds, which has stubbornly remained. The student finance system removes any upfront fees from students to ensure that anybody who could benefit from higher education can.

[Baroness Garden of Frognal (LD)]

My Lords, as the noble Lord, Lord Young, said, the student finance system is broken. Students face soaring repayments that they never signed up for. May I suggest, for instance, that public sector workers—doctors, nurses, teachers, members of the Armed Forces, civil servants, and so on—who will never earn the eye-watering salaries of the private sector, have their loans written off after, say, 10 years of public service? Meanwhile, how about a complete revamp and building a cross-party consensus on what a fairer system would be?

[Baroness Smith of Malvern (Lab)]

To be clear, once again, the level of debt does not determine the level of repayments that students make. To suggest that it does confuses and misleads those thinking about going to university. I take the point that has been made recently about the pressure of student loan repayments. As a Government, we have had to set priorities in the 18 months we have been in power. We have chosen to stabilise the finances of our universities, introduce maintenance grants, increase the maintenance support for students, take action to reduce the unacceptably high numbers of young people who are neither earning nor learning—let alone getting the chance to go to university—and reverse the decline in young people starting apprenticeships. That is a pretty fair set of priorities.

[Lord Londesborough (CB)]

My Lords, in England alone, outstanding student debt now stands at £270 billion and is forecast to reach £500 billion by the late 2040s. With respect to the nation’s balance sheet, how much of this total debt do we realistically expect to be repaid? What, therefore, are the net liability implications for keeping to our fiscal rules?

--- Later in debate ---

[Baroness Smith of Malvern (Lab)]

As a Government, we recognise and support the public subsidy that the student finance scheme implies for students. For plan 2 full-time borrowers who started their courses in 2022-23, for example, we expect that only 32% of them will repay their loans in full. This is therefore a public subsidy for those individuals and for realising the broader public benefits that higher education brings, not only for those who have the opportunity to go through it but for society more broadly.

[Baroness Winterton of Doncaster (Lab)]

My Lords, I am glad to hear that my noble friend the Minister thinks that changes could be made to the system to make it fairer. However, does she agree that it is not sensible to think that there was a golden era when everybody went to university without worry? I went to university during a time when there were maintenance grants, but there was huge pressure in those times, particularly on people from lower incomes whose parents could not afford to put the top-ups in. We need to remember that when we consider the changes that need to be made. If she can make it fairer, that is good, but do not imagine that there was some previous time when everything was wonderful.

[Baroness Smith of Malvern (Lab)]

My noble friend makes a very important point. I went to university without a student loan, but I was part of only 14% of young people who were able to benefit from higher education. That figure now stands at more than 50%, and we need a student finance system that recognises that. I reiterate that the Government are making changes to student finance. We will reintroduce student grants and we are increasing maintenance loans for students. We are therefore opening up the opportunity for more students from lower-income backgrounds to get the benefits that higher education brings.

[The Earl of Effingham (Con)]

My Lords, as my noble friend Lord Young of Cookham put it so well, Rachel Reeves says that the student loan system is “fair and reasonable”; Lucy Powell, on the other hand, says that the system is “unfair” and “egregious”, while Bridget Phillipson says that it is not a priority for the Government. With three contradictory views on a review of student loans, is it any surprise to the Minister that, according to the latest Ipsos survey, over two-thirds of the country

“do not have confidence that the Government is running the country … properly, competently or seriously”?

[Baroness Smith of Malvern (Lab)]

I wonder whether the noble Earl has had the opportunity to discuss with some of his colleagues whether they believe that the system that they introduced is a scam. This is a system that was introduced by the previous Government. Plan 2 is no longer in operation for students starting today. Finally, if the leader of the Opposition is trying to suggest to students that they will repay less through a cap on interest, she would, of course, be misleading them, because that would not be true.

[Baroness Deech (CB)]

My Lords, the Sutton Trust, which has done wonderful work in this area, has shown that students who cannot afford to leave home do worse in their studies and throughout life. Will the Minister give student maintenance top priority and make it open to everybody, as it was in my time? I hope she will be brave enough not to shy away from the possible need to cut university places, have some mergers and make sure that we are not oversupplied with courses and universities that are not worth the money that students are paying.

[Baroness Smith of Malvern (Lab)]

I am afraid that I do not agree with the noble Baroness that reducing the numbers of people who can benefit from higher education is the most effective way to address this issue, although I agree that we need to address the cost of living crisis that current students face. That is why we are increasing the support available through maintenance loans, and it is why this Government will reintroduce the maintenance grants cut by the previous Government.