London Labour MPs have called for Sir Keir Starmer to change the student loans system, as millions of graduates face mounting debt.
Many former students have accrued more in interest than they have repaid from their salaries.
“The whole system needs to be reformed,” said Ilford South Labour MP Jas Athwal.
“Tinkering around the edges is not going to cut it any more.”
One graduate, Eloise Burns, told ITV News that her loan has increased by £15k since she graduated six years ago, despite paying over £200 each month.
Many former students face both rising debt and a challenging job market, with young people hardest hit by unemployment.
London has the worst levels in the country for youth unemployment, with the jobless rate for 18 to 24 year olds in the capital as high as 18.8%, according to the latest figures.
Who is impacted by the student debt crisis.
Plan 2 is one of five types of repayment plans.
However, graduates also need to pay interest on their loan. On Plan 2, the interest is 3.2 per cent (based on RPI in March 2025) with an additional 3 per cent, depending on what you earn.
Why is the student loan repayment controversial?
The first controversy is the fact that student loans rise with inflation, meaning that interest levels can reach extremely high levels.
In 2022, the government put an emergency cap on student debt interest after inflation soared to record levels. However, this was lifted in 2024.
This means that many students are repaying substantial amounts of their loan each month, but their loan keeps increasing.
The second controversy relates to a decision made by Rachel Reeves.
During her most recent budget, the chancellor said that the salary at which graduates start paying back their student loans would be frozen.
The threshold will increase to £29,385 in April this year, then be frozen for three years, instead of rising with inflation.
This means that people will hit the threshold sooner than expected, a decision that has been met with anger.
Croydon East MP Natasha Irons said: “The retrospective changing of the threshold, burdening Plan 2 students with debt, is unbelievable, as is linking interest to the retail price index not the consumer prices index, which the Office for Budget Responsibility has discredited.”
Could the loan repayment system change?
It’s not yet clear whether the backlash to the threshold freezing will amount to anything.
She said: “The system is now at breaking point for graduates. I believe that student loans have become a debt trap.
“It is time for all of us to do something about it. Will he cut interest rates on student loans?”
She said her party would alter the rate of inflation that applies to student loan repayments.
Consumer champion Martin Lewis has also urged the Chancellor to reverse her decision on student loans.
Appearing on ITV’s Good Morning Britain on Monday, he said the changes would be struck down by the regulator if a commercial company tried to make them.
“Structurally, it’s horrible, it’s a breach of contract, it is not moral, Chancellor, you need to reverse that decision and give students what they were promised. The threshold needs to go up with average earnings,” he said.
Amid rising anger, Sir Keir promised to “look at ways” to make the student loans system “fairer”.
A spokesman for the Prime Minister stressed that they are keeping “under review the ways in which we can make life better for graduates”.
Slashing interest rates and changing the repayment threshold on student loans may be considered by ministers, the spokesman indicated.
Sources said that reversing the freeze is still a possibility, according to The Guardian.