University Student Finance

Lord Hain Excerpts

Tuesday 30th June 2026 Lords Chamber

Asked by

[Lord Hain]

To ask His Majesty’s Government what plans they have, if any, to reform university student finance.

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

My Lords, this Government are taking decisive action to improve the student finance system that we inherited. We are capping interest rates to protect plan 2 and plan 3 borrowers from inflation shocks. We increased the plan 2 repayment threshold twice—its first increases since 2021. We have future-proofed maintenance loans, and we will be reintroducing maintenance grants in 2028. We will continue to look for ways to make the system fairer for students, graduates and taxpayers.

--- Later in debate ---

[Lord Hain (Lab)]

My Lords, I thank my noble friend the Minister for that Answer, but surely the student finance system inherited from the Conservatives is an utter shambles: there is mountainous student debt, averaging £70,000, compounding at extortionate interest rates; the Treasury is left with ginormous liabilities, because half is never repaid and is written off; and nearly half of UK universities have rising deficits, with closures and mergers forecast, thousands of lecturers sacked and diminished teaching standards. For every £3.50 paid by taxpayers on debt cancellation, just £1 is spent on teaching students. This is madness. Will the Government implement a graduate tax, estimated at 2%, much lower than the 9% now compulsorily deducted from graduate workers above the repayment threshold? This would be much fairer for students, good for universities and good for taxpayers.

[Baroness Smith of Malvern (Lab)]

My Lords, I acknowledge my noble friend’s criticisms of plan 2 loans, which were designed by the Conservative and Liberal Democrat coalition. Having said that, in principle, a combination of income-contingent student loans and grants is a fair way to ensure that those who benefit from higher education contribute, while lower earners are protected. On the point about the financial sustainability of higher education, our increase of the tuition fee cap is now providing more certainty to higher education about its income from tuition fees, which should enable it to take a longer-term view of its workforce planning and to protect the talent that exists within our higher education institutions. A graduate tax would dramatically increase upfront costs for taxpayers and incentivise graduates to move overseas after completing study. I suspect that these are just a couple of the reasons why no country has ever financed higher education in this way.