Welcome to the Treasury Select Committee on Tuesday 2 June 2026. We are here to start our inquiry into student finance. We are very pleased to have had 52,000 expressions of experience, mostly from graduates who have written in about their experience of the student loans system, particularly plan 2. We have also had 300 other bits of written evidence sent in from various bodies. I thank all of those who have contributed. I am delighted to welcome the first panel. We have Toby Whelton, senior researcher at the Intergenerational Foundation; Kate Ogden, senior research economist at the Institute for Fiscal Studies; Sir Philip Augar, who chaired the 2019 independent panel report to the review of post-18 education and funding in England and is the man who has really looked at this issue in great detail; and finally, Vivienne Stern, who has over 25 years of experience working in the higher education sector and is the chief executive of Universities UK, which obviously has a strong interest in this subject. Thank you all very much indeed for coming. We will have a second panel later with other panellists, and we will have a short break in between. I will start with you, Sir Philip, because you have looked at all of this in detail. One of the big things that came out of the experience of people who wrote to us is that the high rate of interest has caused particular unhappiness, particularly to those on plan 2. Would you outline your thoughts on the interest rate, and how that plays into how the scheme should fund itself? What impact is it having on students or postgraduates when they are having to repay it?

That is a very broad question. One has to start with the public-private balance in funding tertiary education, and one has to start with a set of principles. The present Government set out their principles for post-16 education in the skills White Paper last autumn. They said that the state accepted responsibility for education up to the age of 18 and that responsibility for adult skills would be shared between the state, employers and the individual, but that individuals would take responsibility for tertiary education—that is, further and higher education. What has not been specified is the balance of responsibility for tertiary education between the state and the individual. The panel that I chaired recommended a 50:50 split. We felt that was broadly the right balance, reflecting the benefits that individual graduates derive from tertiary education and the benefits that the state as a whole derives. That was the balance we recommended. Since then, as far as higher education is concerned, the balance has tilted very firmly towards the individual, and for the plan 2 graduates you mentioned, Chair, it is now very firmly in favour of the individual. Depending on whose numbers you believe, individuals hold the something like 95% of the responsibility, and at least 75%. That balance, it seems to me, needs to be corrected. How one does it, whether through the interest rates, the thresholds or some other means, is a complicated subject.

It is worth noting that the OECD has looked at this, and the UK has the highest level of private contributions to higher education in the whole of the OECD, so it is tilted much further than perhaps people realise. On the interest rates, do you think it would be better if people paid higher initial fees and then no interest on the loan, so that graduates do not feel the psychological pressure? Something that very much came out of the evidence is the psychological pressure of the growth of the loan and the capital not being paid off.

Again, that is a good question, but I would not start there. The first thing that has to happen is that there needs to be a public debate about the balance of contributions. I very much welcome this Committee’s inquiry, because you are beginning the debate. Once we have an understanding of that, we can decide whether there needs to be a correction for plan 2 loans. I am happier about plan 5, but for plan 2 loans, whether the issue is addressed through thresholds or interest rates is a matter for quite sophisticated modelling, to which I do not have access.

We will come to thresholds in a moment. Kate Ogden, do you think there is a justification for high interest rates while people are studying? One of the hallmarks of this scheme is that you are accruing interest while you are an undergraduate, most of whom are not earning.

A zero nominal rate would definitely be very bad. It would mean that the Government lost out on loans even if they were fully repaid. There is a strange subsidy in the system. You could think that there is a good reason for higher interest rates while people are studying because they serve two purposes. Even people who paid off very quickly would still repay some interest, and you would avoid people taking out the loan, putting it in a high-interest savings account and profiting. We do not want an interest rate that is so low while people study that that becomes something that is worth doing. The RPI + 3% that applies to loans while people study is now only the case for newly issued loans if they are issued to postgraduates. For new undergraduate plan 5 loans, the interest rate while studying is only RPI.

So from your analysis of the figures, you think that is about the right balance?

I think RPI while studying makes a lot of sense, but in general, RPI is not the right rate to be using for the interest rate on these loans. I would start with Government borrowing costs, perhaps 50-year gilt yields, something like that. That would mean that if they were repaid in full, the Government would not be profiting off the loans, but they would be meeting their costs.

Meeting the cost has got to be part of the system. I will go to you, Toby Whelton. One of the discussions about plan 2 is that the interest rates are very high—much above inflation. Once people have graduated, they are just seeing that capital go up. Quite often at the early stages of their career they are just chipping in to paying off the interest. Is there a justification for that?

I struggle to see a justification for above-inflation interest rates. The only premise that predicates them would be a cross-subsidy—higher earners pay more than the loan they take out in order to offset the write-offs for lower earners—but that is not a fair and sensible system. There is no reason why the subsidy should come from within a single cohort, especially when it comes only from those who take out student loans; 10% of students do not take out loans to begin with, so they are exempt. Those who go on to have very high earnings early on in their career pay off the loan before the interest accumulates meaningfully, so that cross-subsidy is covered by a very niche, somewhat arbitrary section of the graduate pool. Student loans and interest rates are very poor tools of redistribution. If we want to subsidise lower earners, it makes far more sense for that to come from general taxation, where all taxpayers and generations can contribute.

Do you think that there should be a graduate tax? Is that what you are saying?

No.

Vivienne Stern, any thoughts on that point?

Sir Philip’s point about balance is very important, and the fact that the Committee has zeroed in on this question is great. To the point about the interest rate, the reason that the previous Government ended plan 2 and moved to plan 5 was because they could see that, even if there was a sound argument for it—an argument that it was a progressive design—it was politically unsustainable because it caused a great feeling of unfairness. That is why the plan 5 terms are as they are. I agree with Kate that it is not quite right that RPI is used for the measure of inflation in plan 5. It should be CPI. I think there is a plan to bring the two into line, but not till 2030. I know that some of the submissions, including from Professor Nick Barr at the London School of Economics, who is one of the original thinkers behind the current scheme, suggest that the Government’s rate of borrowing would be a sensible mechanism to use. The system has to feel fair; it also has to be transparent for people who are taking out loans. They need to know what the terms are going to be. If the system is over-complex, you compound the risk that it is poorly understood, and if you change it continually over time, as Governments have done—generally to shift the balance of who pays, from the Government to the individual—that does not feel fair.

It seems that you are all saying, or have implied, that RPI is the wrong measure and that you would prefer CPI. Does everyone agree with that? Sir Philip?

I am agnostic on that.

Okay, but for the record, the others nodded in agreement.

I might go for CPIH.

Okay. When you ask a researcher, you never get quite such a straightforward answer, but generally, that would seem to you a fairer interest rate. That would be the general view there.

Yes.

Yes.

Fantastic. Thank you very much indeed.

It is very interesting to hear the description of the balance between what the state pays and what the individual pays. Does the panel have any strong views about what the balance should be in terms of the number of people going on to university, or do you think that is outside the scope and remit of your evidence here today?

It is a really important question, because we run the risk of focusing excessively on the 50% of young people who go to university and insufficiently on the 50% or so who do not. It was a point that the panel I chaired made very strongly. Since we reported in 2019, some progress has been made toward closing that gap by this and previous Governments, and I very much welcome the present Government’s shifting the target from 50% into higher education to 60% into tertiary education—I suppose that is how one would put it. It is really important to bear in mind that some graduates have, I feel, been disadvantaged by recent tweaks to the current system, but let’s not forget the other 50% and the people out there in the workforce who need adult skills retooling.

I completely agree with Philip: we need to pay more attention than we do to the 50% who do not go. On the question about the balance of costs, though, the vast majority of plan 2 graduates have already graduated. When we are worried about how many people go to university and whether we are getting that level right with the loan system we have, the people who think the loan system is unfair have already made the decision to go. I see the balance of costs among people who have already graduated as slightly distinct from the balance of whether we are getting the right number through the door.

While I don’t recognise the number of the section that you have cited, I do recognise the terms. Technically that is probably right, but actually I share the general outrage. The plan 2 people signed up for terms and conditions that were not properly explained. It was in the small print, but really you had to be right into the small print to get this. As you will know, Mr Glen, a financial services organisation has a duty of customer care; that really ought to apply to Government in the context of loans sold, effectively, to young people making the first important financial decision of their life. I share the outrage.

It is all Governments. Legal action is precluded by the section that you cited, but there is a moral issue here. You should not retrospectively change the terms in quite a complicated, almost sneaky way, bit by bit. I do not think that there were bad actors in this, but each Administration has made a small change. Add them all together, compound them, and you get the current distorted situation.

Absolutely. I might point out that the panel I chaired, when we reported in 2019, proposed some changes to student loans terms and conditions but we were quite specific that they should affect only future cohorts on future plans. I still adhere to that view; I agree with you.

This is a problem that has dogged the way we fund higher education participation since the early noughties. Many of us who have been involved in various iterations of this have failed in making a very simple argument: that the language of debt and loans has always been misleading to graduates. The actual quantum of your loan does not really determine what you pay; your earnings determine what you pay. There are protections that mean that if your earnings are relatively lower, at a certain point your debt is wiped. I am with Martin Lewis, who has argued for 20 years that this should be described as a higher education contribution scheme. That speaks to a point that Sir Philip put on the table right at the beginning. The intention was never that these loans would be fully repaid. The intention was that we, as a nation, have a stake in you deciding to go to university. You will benefit but so will we. If I walk out of this room and get hit by a bus, it is a graduate who will scoop me up. It is a graduate who will put me back together over the road. We are all dependent on people taking that personal decision to risk their time and money, so the state should stand behind them as they do so. Any one of us could find ourselves unable to work tomorrow; it is important that we have protections in place for that. Describing it as a contribution scheme would make it clearer to graduates that this is not like a mortgage or credit card debt, but there is a second issue, which I think Sir Philip was speaking to: should you tinker with the terms? My argument would be that it should be clear, at the point that you take out this financial support to study for free at the point of entry, what might change and what will not. If you did what, I think, Kate suggested—used the Government rate of borrowing as the interest rate—it would change as the Government rate of borrowing changed, but if you make that clear perhaps it is acceptable. It should be clear what will not change and what will change. That kind of transparency has been lacking. One reason the scheme is flawed is that, because it is so complicated, when the Treasury reaches in to take £5 billion from the repayment scheme to spend on something else over there, nobody notices. Wonkhe, our little higher education blog, hops up and down and the rest of the world carries on as though nothing has happened. That is not right. We need more transparency.

I am strongly in the “walk it back” camp. When I went to university, 100% of the costs were paid by the state. In 2004, when the first income-contingent loan repayment scheme, or variable tuition fee, was introduced, the balance was about 70% state and 30% individual. Around the time Sir Philip was conducting his inquiry, the balance was nearer 50:50. It is now 70% individual and 30% state. It depends on whose figures you believe—to Sir Philip’s point, we probably do not have time for this—and nobody knows how the Treasury makes those calculations, because it has a dataset that nobody else has access to. There is an issue with that. The point is that the balance is wrong. The reason we should be concerned is that, historically, people have worried that the loan finance system will put people off going to university. As I have argued, we all need people to go to university; our economy is changing, and lower-skilled jobs will be replaced by higher-skilled jobs. If we get to a tipping point and it starts to look like a bad deal, that is a problem for the whole of society, not just for the individuals who might lose out. That is not what has happened to date. Last year’s UCAS application cycle was a bumper year—a record year. However, we are at risk of reaching the tipping point you described.

Ms Stern, you mentioned this asymmetry of information between what the Treasury knows and what independent researchers, universities and so on can know, to have this debate about fairness. Do you think the Treasury should be sharing more anonymised information about loan repayments?

There should be transparency on a regular basis. We should expect the Government to show their working and make that dataset available to the IFS and other think-tanks or economic modelling agencies. There should be some sort of annual scrutiny of the balance in contributions between the individual and the state, so that it does not happen in the dark.

A particularly egregious example of the tinkering of terms was the recent freezes in the Budget. There were actually two freezes. They froze the repayment threshold, which did get some press, and they froze the interest rate thresholds that determine the RPI to RPI + 3% that is added. That second change was not mentioned anywhere in the Treasury Budget documents—we had to ask them. It was in the OBR costings. They did get the £1 billion of savings from it.

What really strikes me about what you have both said is this lack of transparency and the idea that people going into loan plans cannot predict whether there will be retrospective changes, and also might not know all the conditions. That did come across in the submissions to the Committee. Has there been any evidence that, when the Government have made those tweaks to thresholds or even changed between plans, that has been communicated to students and affected their behaviour?

On the change of plans, there was a significant effort, at least, to communicate that at the time. That does not mean that current students—or new students—realise that they are not on the same plan terms as those that are getting all the media attention. I still think there is a risk that, in the wider debate about student loans being unfair, even if people mean plan 2 loans, prospective students do not realise that those are not the loans that would apply to them. On the constant tinkering and the call to maybe walk it back, it is really difficult to say what terms any individual might reasonably have expected when they took their loan out, because the terms have changed so much over the past 10 years. In 2018—nobody talks about this—Theresa May increased the repayment threshold from £21,000 to £25,000. If you had gone just before that, you had a nice surprise from the Government. If you were going to give people the terms they might reasonably have expected when they took the loan out, doing that would be very arbitrary across cohorts.

On the question of transparency, it would be helpful if there was more transparency from the official side. It is also important that universities are more transparent about graduate outcomes. This information is available on a little-used website called Discover Uni. It is complicated to navigate. It is clunky. It looks as though it was designed by someone of my generation, rather than by the kind of people, like my grandchildren, who will be using it. Transparency on both sides, with Treasury and DfE on the one side and universities on the other, would enable young people considering going to university to judge correctly what the earnings outcome has been for past cohorts and to compare similar universities offering similar degrees. There is a vast difference. Transparency is great, but all round, please.

Mr Whelton, the question that my colleague John Glen raises about the Treasury’s tendency to go in and tinker is also a political question. Partly because of the technicalities and otherwise of the student loans, it is perhaps seen as an easier target than taking money from other parts of the tax and benefits system for perhaps older generations. Do you see that as a political issue with fairness?

100%. That is exactly the way I would describe it. I think transparency is key, but it is no panacea. It implies that if graduates did know what they were getting into, there would not be a problem. But it is not just that they have been misled. In some ways, it is the magnitude of change that has been to the tune of tens of thousands for the average graduate. I would push back on it just being a case of transparency. There is a real question of democratic consent if the cost of loans is not realised 20 or 30 years after graduation. There is the cost today of living beyond our means. Rachel Reeves said a few months ago that she justified the decision to tighten the loan terms to get down NHS waiting lists. That was a clear articulation of money being taken today from young people’s futures, so it is essential that student loans are seen as an intergenerational issue along with how we transfer and distribute resource and burdens through generations.

What came across very strongly in the 52,000 responses to our survey was the psychological burden of this growing loan. Do you think there is a disconnect between people in Whitehall who say, “More than half of them are never paid off, so it is not really a worry,” and the actual impact on real people on the ground? I will go across the panel, starting with Mr Whelton.

It is definitely an issue. The main issue is the real financial pressure when money comes out of the paycheque. There are fixes to the psychological burden that would be cost-free. I know that in the 2019 Committee, the Russell Group argued for loan balances to display an expected lifetime contribution based on previous earnings. I struggle to see any reason why that would not be a good idea; it would somewhat offset the psychological burden.

So that would be a job for the Student Loans Company.

I agree with Toby that a more informative student loan statement would be helpful. I do not think rebranding this from a loan is going to change many graduates’ feelings about this product. If you do not change any of the terms and you rename it, I am not sure that will make them feel better. On the psychological burden, the qualitative evidence from people with plan 1 loans who have been asked and surveyed properly shows that their loans were not significantly affecting their lives, as far as they reported it in their early 30s. That might be different for a more recent set of loan terms, and it might be different now that the loans have become much more salient.

I agree with all of that. There has to be something that can be done about badging the student loan system. “Student contribution system” sounds right. On shifting the emphasis from that big outstanding debt number at the bottom of the statement, that needs to be redescribed and re-presented with cleaner, neater text around it, as Martin Lewis suggested back in 2019. On the website is a very good example of a reworked student loan statement, which I think would be very helpful.

I have always been a bit troubled by the idea that you present a very large number, which might not at all reflect what you repay. Of course it is an intimidating thing to see a number in the tens of thousands. What matters is how much of your income each month will be taken through HMRC. If you are on a relatively low income, the repayment is set at 9% above the threshold. There is a side issue here about the thresholds being different for different plans. But if you are on a plan 5 loan, that is £25,000. If you are earning £31,000—I bet Kate can give you the exact number—but it is probably something like £50 a month. Is that about right?

That’s about right.

Ms Ogden has done her maths.

We have an economy that is not performing brilliantly. Costs of living have risen. People’s disposable income is constrained. This means more, probably, in practical terms, than it would have done in a buoyant economy where wages were rising fast and costs were lower. I think these things are coming together, but I think it is a mistake to draw people’s attention to a very big number that may not at all, which may not at all reflect what they actually pay. It is the monthly repayment that you need to understand, because that is what you are going to have to live with.

I can be much firmer on what the initial total cost is—about £22 billion per cohort of undergraduates. Of that, £1 billion is teaching grants, £11 billion is tuition fee loans, and about £9.5 billion is maintenance loans. They are almost as big now as tuition fee loans. Then, to understand the eventual subsidy, we need to forecast earning and employment—

Can I just go back to maintenance—that is a recent change, because of a policy change. Which years are you looking at?

That is 2025. But it has been similar for the last few years.

So the policy change, presumably, has increased that figure.

Yes. The maximum maintenance loans have continued to increase each year, whereas tuition fees were frozen, so the balance has shifted. Then, to understand the eventual subsidy, we need to forecast earnings for 30 or 40 years out, and crucially, we need to take a view on how we value repayments that we receive far in the future compared with pounds now. The answers are very sensitive to that. If we just use CPI, we estimate that 70% to 90% of the loan outlay will eventually come back to Government, on plan 5 loans. That makes the total subsidy for a new plan 5 cohort £3 billion to £7 billion, and I would put an even wider uncertainty around that.

Kate quoted the figures for the plan 5 cohort, but it is actually the plan 2 cohort that is the really sensitive one. For them, the state subsidy, if you call it that, is much, much less. Do you have that number to hand, Kate?

It really is like “Countdown”, isn’t it? Carol Vorderman and Kate Ogden.

I don’t, and the tricky part is that, because for instance the tuition fees have been frozen, we actually spent more on earlier cohorts than we do on more recent cohorts, and loan terms have changed. To get a good figure for the 2012 starters, you need to do some really fiddly calculations for the first 10 years to try to guess what they have already repaid. We have steered away from re-costing that, but if there is significant demand, we will go away and do it.

What you did say, Kate, was that in respect of the 2022 cohort, the individual contribution was 97%, and the state contribution only 3%. That is, effectively, the privatisation of higher education for that one cohort, if I remember the figures correctly.

It is, but within that cohort, some people are paying significantly more than the cost to Government of sending them, and others paying are significantly less. I would not over-focus on the 97% figure, because for an individual, very few—

It has changed the terms, because you have higher earners paying more—it is basically cross-subsidising.

I would approach this, first of all, by sticking to this idea of the public-private balance. I would use plan 5 as the benchmark. In my understanding is it is something like 75:25, which is not the ideal 50:50, but it is better than plan 2. I would probably leave plan 5 where it is and then simply address the intergenerational unfairness for the plan 2 people, who pretty much at all levels face a repayment threshold that is different from the one that—as you explained, Mr Glen—they signed up for. I would focus on—

On remediation for plan 2 and, after consideration of the public/private balance for plan 5, probably endorse that, maybe with some tweaks.

There is a real headache if we go back to try to fix the many decisions made in the past. What we should be doing is setting a set of principles from this point onwards, such that new lines from this point onwards adhere to some fairly straightforward principles, including on transparency and fairness. May I pick up your point about the level of investment by international comparison? This country is under-investing in domestic higher education and research. That is a strategic error. By international comparison, the public investment in higher education is very low. According to the OECD, it means that we are over-reliant on the individual graduate contribution and on the fees that universities are able to earn from international students. We are very fortunate to be able to attract them in large numbers, but that is an inherently unstable source of income. There are two parts to this problem, though. It is not just about the subsidy on the loan. Over time, the Government have almost entirely withdrawn from up-front contribution towards the cost of teaching through what we call the T grant—

Yes. It is important that I say that the Government are about to cut that again. A letter sitting in the DfE will be sent to the OfS, maybe in a matter of days, and it will hand a further cut to that little, residual strategic priorities grant. That is currently about £1.3 billion and the total higher education sector income is about £46 billion, so you can see that the Government are putting a tiny amount of money into the system as a whole to pay for teaching. Part of the response has to be to try to recover Government investment in the cost of teaching, particularly for subjects that are very high cost to teach. To give one example, it costs about £30,000 to train a vet. The university can charge £9,500 this year, and it will get about £11,000 through the strategic priorities grant—that is the highest contribution for any subject, for those high-cost, lab-based subjects. The rest of it is a gap that the university has to make up through other sources, typically by attracting international student fees. For other subjects—things like modern foreign languages—there is next to no subsidy, so the fee is what the university gets, and there is nothing to make up the gap between what that costs to deliver and what it gets in income from tuition fees. I would love the Committee to throw a bit of light on the history of investment in the up-front costs of teaching.

We have a bit of evidence that the supply of places in high-cost subjects is growing at a slower rate than demand. That illustrates the point that you have just made. In an ideal world, universities would expand courses in high-cost areas as demand grows—for STEM, for example. That is not happening, so there is an incentive in the system currently.

Yes, you are losing money on those things more than you are losing money on business studies, for example, so why on earth would you massively expand something that is vastly loss making? My argument would be that if the Government reinstate more up-front teaching funding through an up-front grant, they will have stronger levers to pull, which would allow them to incentivise and support universities to grow provision that makes no business sense to a university at the moment. We have a system that is driven by student demand, and that is fundamentally the right thing because, in short, we are terribly bad at predicting what jobs will exist in the future. When I started in this career, people used to say that computer games design was a nonsense subject and shouldn’t be taught at universities because it was a Mickey Mouse subject. They are not saying that any more, because we have a massive games industry, and that technology is now being used in defence, healthcare, and architecture—everywhere I go, I see games engines being used in other fields. Let the kids decide what to study, but do not distort the university landscape by putting universities in a position where they have to decide between losing a little bit or a lot of money when the Government choose where to expand and contract provision.

Absolutely. I have three quick points to make in response to that, if I may. I agree with Vivienne that the strategic grant should be protected and should at least be index linked. It gives the Government a very important lever. I do not entirely accept Vivienne's characterisation of how much it costs to put on certain courses. The review that we conducted certainly found that universities were extremely good at spending money, and I have no doubt that they spend the money they say they do. It is whether that is done in the most cost-effective and efficient way. I have always had questions and I very much welcome, actually, a growing awareness and acceptance of this from the sector under the current generation of vice-chancellors. Thirdly, I think there was some abuse of the system on the part of higher education institutions after fees were trebled in 2012. I think there was a tendency to recruit big numbers in the low-cost-to-provide subjects, which has not always worked out well. I think universities are aware of this and would recognise this now, so I accept the bulk of Vivienne’s analysis, but it is a little more nuanced in my view. It is not quite as broad brush as that.

Sir Philip, I want to pick up on one point that you made in your report. You said that the Government should cap repayments at 1.2x the original loan payment, but that was not accepted by the Government. Do you have any thoughts about why, and what are your feelings about that being rejected?

There is some disappointment at the Government response to our report. We welcome the renewed focus on further education, skills, and some aspects of the approach to higher education, but it was a disappointment to have the repayment suggestion rejected, as was the reluctance to reintroduce maintenance grants for disadvantaged students. The purpose of the 1.2x cap was actually to try to give some protection to the very highest earners. The highest earners are often vilified in this debate about student finance, but in fact the whole system falls over unless you have those who repay their loans completely. You have to be careful here, because it is not beyond the realms of possibility that private sector providers could offer alternative student loans to those that the state provides. They would offer them to the high-earning lawyers and bankers, and that would leave the state funding everyone else, with a bigger write-off. It is a very complicated equation. That was the thinking behind the 1.2x cap.

There certainly used to be things called career development loans for people doing postgrad or further qualifications. Are you surprised there has not been more private sector intervention into the market, given the state of the loans system as it stands?

Obviously, private sector finance would come from a sector that has been reorganising and retooling after the great financial crisis. I have no knowledge of this, but I would not be at all surprised if banks or private credit providers are looking at modelling the student loan repayment profile and contemplating whether an alternative to the state product is available. If that happened, it would pose a serious problem to the Student Loans Company.

If you do some mystery shopping, you can get a £25,000 loan at a lower interest rate. That obviously would not cover the whole cost, but it could make a dent. I suppose you would have to have family backing or some sort of career trajectory, like being a vet, which would help. A number of you have mentioned that plan 5 loans are fine, or better, than plan 2. I wanted to go through that—Ms Ogden, you can get your pen and paper out. For the benefit of anyone who is not over the detail, the plan 2 repayment threshold is at £29,385, and the write-off date is 30 years after graduation. Fewer than 50% of graduates pay it off—we estimate 32%; I have heard 39%. Plans 3 and 4 are postgraduate and Scottish plans. That is why we jump straight from plan 2 to plan 5. The plan 5 repayment threshold is £25,000 and the write-off date is 40 years after graduation. The estimated percentage for those who will pay it off is 56%. Those are the facts and the margins and the estimates. Why is plan 5 so much better? It is a 40-year burden to a graduate.

There are three differences. There is the lower repayment threshold, which means that people start paying it earlier. There is the longer term, which means that lower earners pay it for longer. There is also a lower interest rate on the loan, though—it is just RPI. That means that you never get people with plan 5 loans repaying more than they borrowed, in RPI real terms.

That is the thing that you think makes it better.

That makes the system more neutral, and that might be what you want a loan system to do. If its purpose is to fund higher education, maybe you want students to make their choices however they make them and you don’t necessarily want to charge them more than it costs you to lend to them. If that is true, then you prefer plan 5. You probably don’t prefer plan 5 if you are a low-earning graduate, because you will repay more over your lifetime.

It goes on for 40 years. That takes you to pretty much retirement-ish age, if you graduate in your early 20s.

Yes, 62-ish.

Your early 60s, just before you hit retirement—but then, you might be hitting retirement much later. What are your views?

I agree with Kate.

It is important to point out that if we are arguing for a better balance, plan 5 is not the model we would pick, because the subsidy is less than the subsidy on the plan 2 loan; but as the cohort of learners on plan 5 loans acquire positions of power and influence, it will be interesting to see whether we get a version of this argument among plan 5 borrowers who feel that they are unfairly treated compared with previous cohorts.

Toby Whelton, intergenerationally, you are going to have a cohort of plan 5 graduates getting close to retirement before they pay off their student loan. At the same time, they should have been paying into their pension. Have you got any thoughts on that?

Definitely. I push back against a clear characterisation of plan 5 as being absolutely better. As Kate mentioned, for lower earners, it will be far worse. We have done our own modelling, and lower earners will pay £20,000 more in expected lifetime repayments.

Have you done any analysis of how that might affect, for example, pension savings?

That is another interesting point. We know that pension contributions ramp up when people get to their 50s, but because of the lower threshold for plan 5, more of the burden will be in the early years. They will start repaying earlier, and that is when young people are already facing the pressures of finding their feet, prolonged adolescence and insecure living arrangements. They might not have a savings cushion. We are putting more pressure on young people at the start of their lives, when there is the greatest opportunity cost and when money invested into a pension will have longer to compound and generate returns, yet we are also making some graduates repay into their 50s and early 60s. I would hesitate in appraising plan 5.

We have plan 5 versus plan 2, but there is an intergenerational aspect to this: we could have a ticking timebomb for the next generation of pensioners, which will cost them and the state.

Definitely. Vivienne is spot-on in saying that we will only truly know how it is received by students and graduates in 10, 20 or 30 years. It is an inherent problem with the system that the costs we are placing on the younger generation will only materialise decades into the future.

Indeed. It is a problem for a future Government, and often Governments of the day do not worry about such things. That is why I made that observation.

Toby made some good points, but I personally endorse the 40-year repayment period. If we are exacting a graduate contribution, they should contribute for the period over which they are enjoying the benefits, and that seems to be a 40-year working life, the way things are going, but with respect to the threshold, I think it is important that we absolutely commit to index-linking the earnings threshold. There such be no ifs and buts going forward. That should then start to offer some protection to the lower earners.

If you count a student loan as a marginal tax—which I might turn to in a second because I am not sure you should—then there are some very high marginal tax rates in our tax system. The UK tax system is particularly unusual for putting very low marginal tax rates on low earners and much higher ones on high earners than even Scandinavia does. If you are really interested in high marginal tax rates, you would be looking at the high-income child benefit charge, the personal allowance taper at £100,000 and the loss of eligibility for childcare support at £100,000, which causes a really damaging effect. Why do I say that I am not sure you should always think of student loans repayments in the same bucket? For those people who do not fully repay their loans, who can be expecting to pay this for the rest of their lives, this does operate like a tax, so the extra 9% does add to their effective marginal tax rate in a real sense. For people who can expect to fully repay the principal—the whole of their loan—extra money they repay now is money they are not going to repay later, so it is not like they are giving an extra pound to the taxman that just disappears; their repayments now are reducing the burden they will have in future years. For those people, I do not think it is quite right to think of it as an addition to their marginal tax rate. It is not changing their reward to work; it is moving their repayments in time.

With plan 2, we do not think the majority will pay it back, so for the majority of people, it does make sense to think of this as a tax, but for the small group of high earners with very high earnings potential—doctors, for instance—I am not sure it is quite a tax. But for the people for whom it does function like a tax, I would be worried about incentives over hours worked. For very highly educated men, the evidence suggests that hours worked basically don’t move. What they do is start taking income in different formats, which are lower tax. You might worry about that from a revenue perspective, but it’s less damaging—

You say “in different formats”. What do you mean?

Running their business as a kind of owner business, they take out dividends instead of—

Instead of paying income tax on it. Or they start putting more in their pension, because that gets it out of the student loan. If you really care about high marginal tax rates because of the combination of student loan repayments and marginal taxes, you could make student loan repayments tax deductible; you could have income tax taken from net of student loan income. That would in some sense be fairer, if we think that income taxes should attach to people’s living standards. If we have two people earning the same but one is repaying a loan and one isn’t, the person repaying a loan has a lower standard of living, so it is in some sense unfair to make them pay the same income tax in that year. It would be a hugely expensive change. It wouldn’t be expensive for the DfE; it wouldn’t affect loan repayments. It would be expensive for the Treasury.

And challenging for HMRC.

I just want to remind people that this is also an investment for the individual. You are not guaranteed higher earnings, but the majority of graduates will earn more as a graduate than they would have as a non-graduate. By age 31, graduates are on average earning 37% more than non-graduates.

That is now; there is a lot of concern that that won’t be the case in the future.

I can ask our colleagues to send the Committee our analysis of the LEO data, which allows you to track earnings over time. Despite the stabilisation of the graduate premium, which is fundamentally a function of increasing wages at the lower end—the minimum wage and increasing the minimum wage over time have compressed the gap between graduates and non-graduates—the lifetime earnings premium for an average man is, I think, about £270,000 and it’s a little bit less for women. I may have got those figures slightly wrong and I can write to the Committee to correct them. The reason for mentioning this is that what we are doing when we provide people with the financial support to go to university free at the point of entry is helping them to invest in themselves. We are also making a national investment, because the Treasury makes a profit on the average graduate. Once higher taxes and national insurance contributions are taken into account, the Treasury makes a return, and the IFS has shown this. So while you can think of it as a tax, it is also possible to think of it as an investment—in the same way as a mortgage is. If you put that on your tax bill, the rate would be a bit of a shock, but you are going to see a return on that investment in most cases.

Marginal tax rates are really important in terms of work incentives, but effective tax rates should not be overlooked. We did some modelling for average graduates, and the last cohort of plan 1, in the first 25 years after graduation, had an effective tax rate of 18%. The last cohort of plan 2 will have an effective tax rate of 22%. For plan 5 it’s 23%. That may not seem like a lot, but if that increase in effective tax rate was not delivered through frozen income tax thresholds and frozen repayment thresholds, it would be equivalent to a 10% increase in the basic rate. The pernicious effects of fiscal drag are disguising the further burden. That isn’t captured by just the marginal tax rate.

I would just echo the point about freezes in income tax thresholds. By 2031, there will have been a 10-year freeze in some of those thresholds, and if you’re really worried about marginal tax rates, that is dragging more people into higher tax bands. Already we have seen the share of the population who are higher rate taxpayers double since 2020.

To go back to the theme of intergenerational fairness, my concern is that a lot of the levers that the Government now are and previously were pulling, whether that is changing the interest rate or the threshold for repayment, are really a conversation about cross-subsidy within the current or previous cohort of graduates. The bigger picture, which I think Sir Philip was trying to get us to look at, is the balance of contribution between the state and the individual overall. As somebody who went to university in 2008, it seems to me that the deal has got worse and worse for progressive cohorts of graduates—that is the intergenerational framing. Mr Whelton, do you think that we get too caught up in talking about the subsidy within cohorts, and that we are losing the big picture in terms of the worsening fairness for successive generations?

One hundred per cent. I completely echo what Sir Philip has said. We should decide how much the state should subsidise higher education. We believe that generations have a duty to pass on the same amount of resources and opportunities that they experienced—if past generations had their higher education partly subsidised, we believe it unfair that they push that cost on to future generations. That is allocated by the subsidy of higher education, and whether that subsidy is delivered through a cut in interest rates—the repayment threshold is a secondary issue, I completely agree—ultimately any solution must contain an increased subsidy of higher education.

You characterise me correctly. I endorse what Toby has said. You are focusing as a Committee on a really important issue, and getting this rebadged as a student contribution system is vital, but we must make sure that in focusing on the egregious nature of some aspects of student loans, we do not detract from the overall benefits of a vibrant HE sector for the UK economy and for individuals who go there. It is a balanced and nuanced debate that we are having.

Sir Philip, the Committee has heard a lot of evidence that the terms and conditions of the loan were not made clear to the students, that students did not understand them and that talks to students did not explain that payments ratchet up as pay goes up. An FAQ document that we have seen says a student loan is not likely to affect a person’s ability to get a mortgage, which is completely wrong, and it is not explained to students that the repayment thresholds could be changed unilaterally. Sir Philip, you write very eloquently in the FT from time to time about the importance of banks providing good products to people and not burying nasty surprises in the small print. If a bank sold a financial product in this way, would you expect the FCA to be all over them?

I am thinking immediately of the car loans scheme or the payment protection insurance scandal, which produced exactly the outcome that you have described, yes.

A student loan will more often than not be one of the first big financial decisions that a young person makes, and one of the biggest financial decisions they make in their lifetime. The loans are exempt from the Consumer Credit Act and financial services regulations, so people do not benefit from any kind of consumer protection regulation. Just a quick answer from each of you, starting with Mr Whelton: do you think that is fair and reasonable?

I think we can never aspire for it to be a rational decision of a student; they will never be able to calculate the cost of university, because it is so contingent and always changing. While it is important to have as much transparency as possible, it is ultimately an exercise of the Government not exploiting the system to raise revenue in subsequent years.

I agree that these are complicated and important financial decisions that we are asking often 17-year-olds to make, so the quality of the advice and guidance they get is crucial as to whether this is a fair decision to ask them to make, given the consequences it might have for their future.

If there is not a legal responsibility, there is a moral responsibility not to alter the terms and conditions as we go along.

I think we have all agreed that we need transparency and scrutiny, and we need a commitment to people who take out loans of what will and will not change. I am not personally persuaded that the Financial Conduct Authority is the right body to provide that scrutiny, because it is not a commercial loan. We have talked about this as a kind of partnership between the state and the individual, and it has a kind of statutory footing that reflects that. So scrutiny, transparency and fairness in terms, yes. Should it be regulated in the way that commercial financial products are? I am not sure the answer to that is quite so clear.

But you could change the law.

You could.

Coming back to the statutory responsibility, quite a few years ago, in my previous life, I spent a lot of time advising on the contract for difference regime, which is the mechanism to incentivise renewable generators to build big offshore wind farms. One of the key things from industry was that this must be a contract, because a contract is bomb-proof and can only be changed by consent of both parties, so the generator would know exactly what it would be paid throughout the course of a contract. They did not want it to be statutory, because statutes can be changed overnight. Imagine a female engineering graduate from Imperial College working on one of those wind farm projects. The company she works for is totally protected against retrospective changes and has lawyers and so on helping them. The individual female graduate, at 22 or 23, has no protections whatsoever. How can that be reasonable?

Can I offer one example of a change that has been made that is probably in the interests of graduates? The Government are currently worried that interest rates will spike because of the closure of the strait of Hormuz, so they acted a couple of months ago to cap the interest on plan 2 repayments at 6% for the next financial year, to provide, in a sense, temporary, short-term protection against a potential spike that was out of everybody’s hands. I am not giving a straight yes or no answer, which might be frustrating, but I think you need to look in the round at how you can provide the transparency and fairness you are seeking, in a way that does not leave Government without room to intervene when it is in the interests—

Gently, it is just a little frustrating because the difference is this: if the Government offered a positive change to students, they would accept it. It is the protection against the negative changes that is a concern, but I will draw it to a close.

There are examples; for example, when banks were nationalised, there were caps—floors and ceilings—in place to try to provide that protection. One of the things that was apparent in all the paperwork released from the DfE—the FAQs, or frequently asked questions, and the graphs about repayments—was that these were aimed at 18-year-olds. Do you think some support should be given to parents, teachers and those advising those 18-year-olds? You must have quite a lot of understanding of it to have dug through to find the relevant information and, even then, it was not always accurate. Sir Philip, obviously you looked at this.

Absolutely. I completely agree with that. It is a big responsibility on careers advice and guidance in terms of explaining not just how the loans operate, but the range of options for young people in higher and further education. From next January onwards, there will be the option to do modular degrees under the lifelong learning entitlement. It is one of the most important phases of a young person’s education, this final year, and a lot of the best advice will come from outside the classroom. It is not just parents; it is schools and colleges as well.

Of course, we are talking about 18-year-olds, but a lot of these people are actually 17 and in sixth form. If they are thinking about university or going on to do A-levels, they are often making decisions at 15 or 16. So there is a lot more to be done there. Ms Stern, did you want to add anything?

I am not an expert in this, but I think the funding for information, advice and guidance in schools and colleges has been reduced. That is clearly a mistake. If you want people to be able to make well-informed decisions, schools and colleges have really got to be one of the principal routes for accessing that. Going back to an answer to an earlier question, you could produce the best communications materials in the world, but if you have a complicated system, it is still going to be hard to get that across. That is the problem we have got right now. I still think Martin Lewis is talking about the right sort of thing, although I agree with Kate that you cannot somehow reskin this system and describe it as something different, because it will not be credible. Fundamentally, over time, we need to re-establish how we describe this system, so that it is understood to be a contribution, dependent on your income and not on the overall level of your outstanding loan.

If Martin Lewis was paid per mention in the Treasury Committee, he would be doing pretty well by now.

I am not on commission!

You talk about the money, but it is still quite complicated. Of the 52,000 people who responded, a quarter said they would do it again, but for most people, it is Hobson’s choice. For most people, if you want to go to university, you have to have a loan, so even when reading the small print, they did not really have an option. That goes back to the moral responsibility and duty of care that Sir Philip talked about.

I have just a couple of quick issues to cover at the end. Sir Philip, you made the suggestion—which seemed to be met with a reasonable degree of agreement—that we should perhaps look to rebadge the system as a student contribution arrangement, rather than as a loan arrangement involving debt and all the psychology that goes with that. Did you ever get a response from Government about why that was not picked up or looked upon favourably?

No.

So it did not have a positive take-up from the previous Government, but it might be something we can look to take back in our report.

We had interesting informal discussions, but as far as I recall, there was no formal commitment to do or not do that proposal.

As a separate question, looking at the international comparisons, it was said earlier that the state makes the smallest contribution of any G7 country, and when compared with similar countries across Europe and elsewhere. Is that because those countries send fewer young people to university, or because they see the state element as an investment that provides long-term payback for their economies? Is there a different way of looking at this that we in the UK should think about?

Generally, we are in a pack of advanced economies that have expanded participation to at or around 50%. Six or seven advanced economies are ahead of us in terms of the proportion of their population educated to higher levels. That is because the labour markets of advanced economies tend to drift to higher skills. If we want to be in that competitive race, we have to be in that field. Obviously, a different view is being taken in some countries about the appropriate balance between the public contribution and the private contribution.

It is hard for us in this room to work out what subsidy we give to our students, so how on earth can you do consistent international comparisons of this? That is very difficult to do.

Do you think it is a useful to look at the cost benefits of state investment for the economy and for individuals, in order for us as a country—not necessarily for this inquiry—to think through whether having greater state contribution is worth it in the end?

My view is that we should be making a greater state contribution, for all sorts of reasons, not least to give the Government stronger levers to influence what happens in the higher education system. One thing I would point out is that if you look across systems, it is quite difficult to compare levels of investment, because what they are expected to deliver is different. Rightly or wrongly, we have a university system that is quite expensive, which is because we expect quite a lot from it. That explains why we have the highest completion rate in the OECD—other countries tolerate levels of degree completion that we would find horrifying. We also expect students to get a degree of wraparound care at university that other systems would find baffling; for example, the support for mental health. Universities also provide real, practical support to enable people who have come from weaker educational backgrounds to catch up. University is the one place where students from relatively lower-income backgrounds can equalise their prospects with peers from more affluent backgrounds, but that is because universities put a huge amount of effort into personalised support, which costs money. We have very low staff/student ratios by international comparison. Do we want that? That is probably a subject for political and public debate now. But the system that we have is one of the best in the world and it costs to teach like we teach.

That is helpful. Thank you very much.

I thank our panel very much indeed for their time. We will now suspend before our second panel, which you are very welcome to stay to listen to. Witnesses: Alex Stanley, Kieren Walters and Oliver Gardner.

Welcome back to the Treasury Select Committee on Tuesday 2 June 2026. We are continuing our discussion about student finance, particularly the student loan system. The second panel is students and graduates, reflecting the people in the middle of the system, so we are keen to hear from them. From my left to right we have Alex Stanley, vice-president for higher education at the National Union of Students. Alex, you were a student or are a student at Exeter. How does it work? Are you on a sabbatical?

I was a student between 2020 and 2023 and then moved on to this full-time job.

Kieren Walters is the director of communications and research at Prospect, the union—I will not ask when you were at university, Kieren. Oliver Gardner is the founder of Rethink Repayment, which has been instrumental in the discussions that have been very vibrant and heightened in recent months. Alex Stanley, thank you for your written submission, which argues that the high interest rates that are applied, particularly to plan 2, are causing students to have that lifelong debt. As I said in the previous panel, we got very loud and clear from the 52,000 submissions to us that that felt like a very big psychological burden. You also argue in that statement that all students should pay back for 30 years to make the system more fair, effectively arguing against early repayment. I just want to be clear: is the NUS in favour of lifelong repayments or of low interest rates to try and reduce the lifelong burden?

First of all, thank you very much for having me. Our biggest concern in all of this conversation is around the thresholds. Time and again we have heard from hundreds of students that the fact that the thresholds were frozen has presented a real, serious challenge for young people. This generation of graduates is struggling to talk about pensions, mortgages or starting a family, let alone paying rent and bills. A lot of that comes from the fact that that breathing space just does not exist any more. That was one of the things advertised—

The breathing space from graduation to when you start?

From graduation to the point of threshold. I am happy to touch on other issues as this session continues, but the priority for us in the immediate term is those thresholds.

That on its own will just give us a breathing space. The high interest rates are one of the things that came out loud and clear in the submissions. People felt that the capital goes up from the minute they start studying. Do you think it is reasonable that it is going up? We heard interesting evidence from Kate Ogden on that. Interest is being applied to people’s loans even when they are not earning as undergraduates. What is your view on that?

It is a really challenging psychological situation that it puts students and then graduates in. It is not just that you are seeing it rise when you are student; there are other instances when you are not necessarily earning but are seeing it go up—for example, with parental leave. There are a number of issues with this system that we have tried to highlight as much as possible. There is one thing I would be really concerned about. I am really proud of higher education as a sector that is a fantastic tool for social mobility, and if I start feeling for one second that some of the concerns around interest rates and spiralling debt will put off working-class young people from going to university, that is absolutely something that we will raise.

What is your view on whether any interest should be charged when people are undergraduates or, as you highlighted, in other periods of not working, but particularly before they start getting the benefits of their degree? Kate Ogden was saying—and I think it was a fair point—that if you give people an interest-free period, people could take the money, put it in a high-interest account and make money from a taxpayer loan. Do you have any views on that at the NUS?

I do not think that it is fair that people see it go up as they are studying. Namely, I would highlight the psychological burden it puts on you. I graduated just three years ago and borrowed £50,000, and I am already in a situation where I have £63,000 of debt, and that is a story that so many young people across the country will be able to tell.

With plan 2 loans, you were charged the maximum interest rate when you were at university. Thinking about what Kate said, we would agree as a campaign that a 0% interest rate is not really feasible because that means that the real value of your loan will fall, but I think charging an above-inflation interest rate while people are at university is absolutely outrageous. I know that this is not really a focus of today’s inquiry, but postgraduate loans also face an RPI + 3% interest rate, regardless of income, and a repayment threshold of £21,000, which in and of itself is outrageous.

Because £21,000 is considerably below the minimum wage.

Yes, the full-time equivalent minimum wage would be far above that. On mandating a 30-year pay-off period, I think that you would have to be very careful. You could not allow some people to have their parents pay their tuition fees up front, and then effectively opt out of paying any interest on the loan, but then force people who have no option but to take out a student loan to stay in that 30-year period. I think that that would not be feasible.

That issue of whether people should be allowed to pay it off early was certainly brought up in some of the discussions in the early 2010s. So your view is that people should not be allowed to pay it off early.

No, I think they should. If people have the option for their parents to pay it and therefore escape all the interest, I do not see why people should not be able to pay it off early.

Sorry—you are saying that, because some people never take a loan out in the first place, anyone else who can later pay it off—

Yes. I do not think that, just by virtue of having to take out a student loan, you should be forced to repay it over the full 30 years, if you are going to allow people to pay fees up front. Does that make sense?

Yes, I hear what you are saying. Picking up on the 40-year versus 30-year write-off date, do you have any views on that? Under plan 2, the write-off date is 30 years after graduation, and under plan 5, it is 40 years after graduation.

The prospect of paying it back in your 60s does not feel great to me. It was interesting listening your pensions conversation earlier. The OBR has estimated that there will be a tripling in the number of pensioners living in private rental accommodation by 2040. We are at risk of creating a generation who are not able to buy houses and accumulate the wealth their parents did, and they are not able to save into their pensions. They are making these student loan repayments and then, effectively, they are getting to retirement age. The burden on the state is going to be substantial. The previous panel were very measured, but I would like to impress on the Committee that I see this as an intergenerational crisis.

In a previous role I had, we looked at pension contributions, and we saw a trend of people not even paying into their national health service pensions because of the costs of rent and the pressures on this generation right now.

In your 52,000 people survey, there was a statistic that 70% think that their student loan repayments will materially impact their financial situation. We decided to drill down into that a bit further and surveyed about 1,300 people: 90% of them said that their student loan repayments are delaying or preventing their ability to buy a house; 85% said that they are delaying or preventing them from starting a family; 91.5% said that they mean that they are not able to save as much for retirement as they would like; and 73.3% said that they have considered moving abroad due to financial reasons.

Just out of interest, was that a weighted survey?

No, it was done with our supporters. But I think that it gives you the strength of feeling of young people.

Indeed. To be clear, our 52,000 responses were not weighted. It was those who chose to write in; we did not weight ours either. It is just useful to know. Mr Walters, you are dealing with an older cohort. What about the 30 or 40-year thresholds?

We can generally speak to those people who are in the plan 2 category, who are now quite established in the world of work. To be clear, some of the first people in that plan 2 group are hitting their early 30s. That is the group that we are talking about, and we will hopefully come on to talk about some of the marginal tax issues and other things. I think that the point made in the previous panel about looking more broadly at the balance between taxpayer and student contributions is right. However, I would perhaps depart slightly from the other panellists in saying that, for our members, if you were to look at short-term priorities where you would potentially spend some more Treasury money, that would be reversing the decision made in 2025 to freeze the thresholds. That would put money back in the pockets of graduates, which would help with the cost of living squeeze that they see. Yes, there is a psychological burden of growing loans and other things—I think that is undeniable—but in a world of limited resources and prioritisation, the priority needs to be on the things that put money in the pockets of graduates in the short term.

I think there is a fair consensus about the thresholds. Mr Gardner was maybe not explicit—Mr Stanley, you made it very clear about the thresholds, as did Mr Walters—so Mr Gardner, would that be a high priority for you?

Definitely.

Just to be clear, if you had a cut in interest rates and the winners were higher earners because they were not having to pay quite so much, do you think that would be fair?

Yes. I think that the people who are going to end up paying back the most are teachers who go into middle management and senior management positions, or doctors. It is not the investment bankers and the corporate lawyers who are most affected by the above-inflation interest. As an example, there is a 33-year-old NHS doctor who is about to become a consultant. So far, they have had £38,000 of interest added to their student loan and they are expecting to repay about two or two and a half times the amount they initially borrowed. This is an NHS doctor, so I think that we need to think about how we are incentivising people to do jobs like that.

I agree with that point, but I would just say that thresholds would be the top priority. Next, for our members, would be something around the repayment rate. I think that interest rates are a bit further down the list in terms of what you would target if you had money to spend in this area.

They are all incredibly important to us. I think that the thresholds are an absolute priority in the immediate term for us. The repayment rates would probably follow that, but I acknowledge some of the real issues around those interest rates. I think that £47,000 is the yearly salary that is considered to be a sort of danger zone. You will find a lot of young professionals in that space who are being hit quite hard. I absolutely share the concerns around the interest rates.

Then of course if they go a bit higher than that, they are paying higher rate tax on top as well.

Absolutely. I understand that, legally, this may not have been a mis-selling of loans, but if that is the bar for this conversation, I think that we are letting young people down in this discourse. When plan 2 loans were introduced, I think that there was a clear consensus in the messaging that you would not need to worry too much about the debt that you accrue—that you would not be looking over your shoulder too much—but that is just not the reality that young people are facing at the moment. The average graduate debt is £53,000. That is pretty harrowing for young people who are trying to move into the job market and find some stability within their lives. I absolutely think that there is a real issue of acting in good or bad faith. That is something that we need to deal with as we start to move forward. There have been two occasions where the thresholds have been frozen, and that has a real-time impact on graduates.

I am sure that after this session I can provide some more detailed information on the specifics—I would be very happy to do that. I would say that because of the discourse we started with on plan 2 loans—that they were not really something that you were going to need to worry about, and that you can keep calm about all of it—there was not necessarily the feeling that we needed to analyse every single piece of information in the contract. As we have seen that discourse start to increase, people have started looking at their loans and have started to see just how unfair this system is. That is why we have seen concern start to rise. I think that people not necessarily analysing every single part of their loan is a result of the fact that there were not necessarily good faith actors at all moments in this process.

We did a survey alongside the campaigning organisation Organise of around just over 3,000 people, and 82% of respondents said that they did not feel “fully educated” on their loan terms before signing. I also think that you could have been fully educated about the loan terms and have completely understood that the repayment threshold was going to rise each year with average earnings and yet still not have able to make a fully informed decision because the threshold has been frozen. You may have seen the BBC reporting how the people sent to schools to sell these plan 2 loans were told to compare monthly repayments to a phone contract each month. They were encouraged not to use the word “debt” unless they were asked about it. That is really troubling, particularly when graduates or young people are already facing a really challenging financial outlook with housing affordability and pensions. Real wages for graduates have declined by about 30% since 2007. To then see Rachel Reeves or previous Governments freezing the threshold makes it feel a lot like we are being used as cash cows. I do not want to make this a battle between generations, but by 2030, the triple lock is going to cost the Government £15 billion a year to maintain. Lots of people feel very angry about seeing graduates as the mechanism to effectively generate more tax revenue from a loan system.

To build on those comments, I think it has eroded graduates’ trust in Government that there has been a constant chopping and changing of the terms retrospectively, and that is problematic. I suppose that then brings you to the question of what you do about that. We would first argue for a commitment on all sides to more policy stability going forwards, and to think about how you make decisions in a more open way. It has been touched on that there is very little information about options and trade-offs published by the Treasury, so it is quite hard for people to understand externally what is going on a lot of the time. Also, there is not a conversation between those people who represent graduates, students and others and the Government and other parties to try and get a stable and sustainable system over time. Instead, it is just action—small changes around individual budgets, which then over time add up to these quite big changes overall.

For our members, it is that group in the plan 2 category that have been hit by the retrospective freezing of the thresholds. That is absolutely at the forefront of their minds.

I would agree that the thresholds are an absolute priority, as well as the repayment rates.

Yes, plan 2 should be a priority—first, because there are around five million people who took out a plan 2, and secondly, to reinstill trust in the sector. A lot of this discourse has primarily focused around plan 2, and a lot of prospective students and their parents will be looking at this conversation and going, “Something really needs to change if I’m going to have the confidence that my child should go to university.” If we fix some of the foundations of plan 2, hopefully we can start to rebuild some of that trust.

Our campaign has predominantly focused on plan 2. That is not because we necessarily think that plan 5 is much better, but there are a lot more people who are earning enough for plan 2 to be having a significant impact on their ability to buy houses and have children— things like that. That is why it needs to be the immediate focus, but I definitely think plan 5 might need to be looked at further down the line.

I can’t give you the exact figures on the international comparisons. One thing I would back up from the previous panel is that we have had lots of economists look at this and it is very difficult to cost policy changes, because a lot of the data is held by the Treasury and not shared publicly. One thing we need to be careful of is having this zero-sum discussion about graduates and non-graduates. You can absolutely make the case for lowering the repayment burden on student loans for graduates while also investing in high-quality apprenticeships for non-graduates. You will have seen Alan Milburn’s report last week; it is now more competitive to get into the top apprenticeships than Oxford and Cambridge. There has been a 35% decrease in the number of people starting apprenticeships in the last decade. That is a huge issue in and of itself, but I don’t think we should be pitting graduates and non-graduates against each other.

I do not have a specific view on that.

We represent members across what you would hope are broadly growth areas; STEM and the creative industries are very strong areas. Whether or not someone goes to university in those areas, they are expensive areas to train people in—degrees are expensive to deliver, as is good quality vocational training. There is broad consensus that we need to grow all those areas, so over time, regardless of that balance, some of those costs will increase. Also, in the vocational area, employer contributions to training have fallen over time. Our union represents a lot of people in regulated industries, and I would also observe, for example, that moving the cost of training lots of people in the electricity sector on to employers feeds back through the electricity bills people pay. Most people are paying those, so we have seen that some policy costs are better on general taxation. There is no straightforward and simple link between the cost of universities and the overall cost to taxpayers of the kind of training and education you want to deliver over time.

I am going to give you a nuanced answer to that question.

The first part that it is undeniable in the current system that the Government do not have many levers to direct the funding they provides, through either grants or student loans, into particular priorities, whether it is industrial strategy or growth priorities more broadly. I do not think you can argue against that. However, it is also true that it is quite hard to work out exactly where different types of degrees are going to feed into growth. I will give you two examples. First, the creative industries are one of the Government’s industrial strategy priorities. Film and TV, where we represent a lot of members, has been a huge growth area for the UK. Some degrees in the arts and creative sector might be considered unproductive on paper, but they are going to feed into film and TV, and will be hugely productive in their pay-off for the Exchequer. The second area is that there is clearly huge change happening to the labour market, not least because of AI. You might have said that coding skills or legal skills would be huge pay-off areas, but now they are massively exposed to AI, so that is not quite as clear as it might have been otherwise. It is quite hard to see that.

I think the Government should have more levers to direct more clearly and broadly the skill system, including universities, towards their priorities in terms of industrial strategy and growth. They have to be a bit careful in the way that they do that, but they should try to steer the system more than they do. Ultimately, that will require increasing the supply of some more expensive degrees in STEM areas.

Overall, you are going to see more people over time wanting to pursue those STEM and creative-based careers, because clearly that is the way that the economy is changing over time. Part of this is about day-to-day spending, but it is also about capital spending. A lot of those STEM areas would require more labs and science facilities, and all those things are expensive to provide, so it is not all about revenue funding.

I think the inference is that there is a need for more medical school places, and that it has taken time to do that. One of the interesting things here is that Governments are not always good predictors of future workforces.

It is hard for us as a UK union to speak to international comparisons.

Yes. The one slight notion of caution on that is that, clearly, the way the UK system is currently structured means that there are some centres of excellence around the country. We often represent people with very specific and specialist skills, and there might be only one, two or three places that provide that kind of training. You would have to broaden the provision of training across the country if you were to go down that route.

I would like to touch on the kind of culture that is created by the current balance of public and private investment. We would all like to see universities and the sector treated as a public good, but because of the financial pressures, there is this continuous cycle of universities having to be laser-focused on recruitment. Getting international and postgraduate students through the door is the focus, in many ways. I do not think that is where the conversation should be at. Students are so often being left behind in this discourse. Some of the statistics that I have seen in recent years are pretty harrowing: 27% of universities are considering cutting bursaries and scholarships and 13% are cutting hardship funding. That is because universities are being put in these really challenging positions. You would see some of those pressures alleviated with further public investment. I acknowledge that this is a difficult financial situation we find ourselves in, but what we have currently is a kind of two-tier student experience that is being created by this financial predicament. Some of our more well-off students are still able to enjoy the full fruits of their university experience. They have the privilege of unpaid internships, of clubs and societies and of work experience—of being able to do everything they can to make themselves the ideal graduate to go on to that perfect job. The rest of the student body are in a really difficult position where they are working long hours in a part-time job. Of my members, 23.9% are working 30 hours a week alongside full-time study. That is no way to be able to fully enjoy the student experience and work towards being the ideal graduate that you want to be to move into the job market. That is the kind of intervention that we need to see if we are genuinely going to make sure—

It is about creating a climate where universities are able to invest in a way that enables all students to have the opportunity to be the best graduate that they can possibly be. I absolutely acknowledge that the drop-out rate is not in the worst place in the world, but we have a situation where a lot of students are just about clinging on. They are clinging on because they know that this is a real opportunity for them, and that university is that tool for social mobility for them. But right now, we are letting them down. We are letting them down because there is not necessarily that safety net.

Perhaps I have more optimism. The strength of feeling has been highlighted by this discourse. We are already seeing the Government making interventions that I do not think they would have dreamed of months ago. Previously, we had the Chancellor describing the current system as fair and reasonable, and now we are in the place where we absolutely welcome this Committee’s inquiry. We have also seen policy changes already, so maybe we have a slight difference of opinion there. One of the things that you could do for students, on top of the interventions that I would make for graduates, is expand the number of students eligible for the new reintroduced maintenance grants. If we want to alleviate some of those pressures in the short term for students without increasing those debt-based burdens for graduates, that would be a real positive step in the right direction.

I want to pick up where Mr Glen left off. Mr Walters, a lot of your members work in engineering—in the energy industry and so on. Those are fields of great innovation. We would not have said 30 years ago that we could run much of the UK on renewable energy—people would have thought we were crackers. Do you think there has been enough innovation in the way higher education is delivered? For instance, more two-year degrees as opposed to three or four-year degrees? Could you give just a couple of short remarks on that? That would address Mr Glen’s question about doing things differently and more efficiently.

It may do. I think we would always put an emphasis on some of that industry-linked learning. When we speak with our employers, they are keen to shape the system more and to ensure that the training and education delivered is linked to what they need in employees. Having said that, I would caution that that is not always necessarily a cheaper way of doing things, because other costs are associated with providing those kinds of skills.

It could certainly be improved, I think it is fair to say. Sir Philip referenced certain websites, which could certainly be updated, but they have a lot of the relevant information. I also think that some of the messaging that comes through from colleges and sixth forms is not always necessarily consistent. There is definitely a cultural conversation to be had on what options are best for different students. For many students, further education and apprenticeships will absolutely be the right option. We have often said that, in many cases. As much as we want as many people who want to go to university to be able to, we are agnostic as to the actual decision that that student makes, so long as it is the right one for them. For us, this is not necessarily about making sure that as many people go to university as is possible, but about them having the tools available to make the right choice. Right now, a lot of updates need to be made—

A lot of gaps certainly need to be filled, and a lot of that comes down to the sort of contract that we sign up to. We have seen, I think, the state not necessarily acting in the best of faith at times—

I would say that the choice is made clear to young people. Some of the expectations when it comes to things like work alongside study are not necessarily made clear, and some of the struggles that might come alongside a course are actually some of the things that I think we should be highlighting.

I think it could be better. You heard Sir Philip Augar talking about the Discover Uni website, but it is quite clunky. Definitely more could be done to educate young people—

How long is a piece of string? It is very difficult for me to provide judgment on that.

Do you get that from some of the cohort that you engage with? Those people have gone through this, made their decisions and are in their jobs. Do you do you pick up anything about regrets and about decisions they made because they did not realise?

Quite frankly, if you asked most people with plan 2 loans how those loans work, I imagine that the vast majority would not be able to explain the specifics, because it is a very complex system. That might even go to show that not enough education was done. Whether people have enough information to make the exact course choice, I am not sure.

Moving to the distributional effects and the question of winners or losers, I take it that the panel is agreed that given the scarce resources and the need to prioritise, your top priority would be to tackle the thresholds. Is that generally the case? Witnesses indicated assent.

And interest rates are lower down the list of priorities, because the change in the interest rate really affects only the top-earning graduates who will ever have a chance of repaying their loan. From the submissions we have had, as others have mentioned, what is really psychologically oppressive for most plan 2 graduates is getting that letter through the post with their ballooning debt. One person called it “extremely soul destroying” to even read it. That means that there is a lot of political pressure from graduates on the interest rate issue, whereas solving the interest rate issue is not in the interests of the general cohort of graduates. That is the political problem that I see. Do you see that as the issue, and if so, how do we tackle it on a political level?

I would draw you back to my earlier comment that there needs to be more of a conversation between the Government, the Treasury and the groups who work with graduates and students, including trade unions, to work through some of what that looks like. If you are going to make a change, you should get wide buy-in for how you implement that change, which means that there are people in the conversation who are not just Ministers saying, “This is how it is.” If you can get wider buy-in, you can start to change the conversation and make people think about the broader context of that loan letter.

Do you think that the presentation of it can be improved, so long as it is a loan on paper and you are going to get a loan balance? Is that the fundamental sticking point?

I think the presentation of anything can always be improved. You could use that as an opportunity to point out the broader contours of the system, and that most graduates do not repay the full amount and could experience it as a tax. You could do that, but what would be felt most keenly is putting more money in the pockets of graduates, and having that to point out to them at the time as well.

I would echo that. On a very fundamental level, if people saw more money going into their pockets, it would make the messaging a lot easier. One of the big issues with the interest rate freeze at 6% is that people will still see their overall amount continue to balloon, but only by a little bit less. If we made changes to the repayment rates, we would see more money going into people’s pockets. If we are talking about messaging and rhetoric, that is probably a bit easier to sell, especially with the backing of the sector.

Finally, I have a much broader question about intergenerational fairness, which came up with the previous panel. When we talk about the overall shape of the tax and benefits system, as you said, Mr Gardner, there is a risk that students and young people feel—understandably—like they are the cash cows or that they are losing out from the overall structure of the system. Mr Stanley, as somebody who works with young people and students, do you see that as a political and structural problem with the fiscal system, and how would you change it on a fundamental level?

I do feel that it is incredibly fundamental. It speaks to the fact that a lot of people are losing trust in politics and in political parties, and it speaks to the wider issue of intergenerational unfairness. Look at how this cohort of university students and graduates have been treated. They had their tuition fees trebled, they had their maintenance grants scrapped, they had maintenance loans not rising in line with inflation, they had their thresholds frozen, they had their repayment rates too high and they had their interest rates too high. It has been a pretty rough deal for this generation of young people. Making changes to some of the things that I have spoken about would be a step in the right direction, because young people are not having those relevant conversations about their mortgages, pensions, starting a family or investing into the economy themselves. They are instead talking about how to get by.

I teach economics—that is my day job—and I strongly believe that there is a clear, long-term economic case for lowering the burden of student loan repayments for young people. The consultancy Oxford Economics wrote a really good research paper saying that targeting young workers is economically counterproductive as they have higher marginal propensities to consume and are more likely to invest in equities. The knock-on effects are a “much less dynamic economy, with more limited consumer spending, weaker business investment, and greater aversion to risk.” Putting more money in the pockets of young people means money that is going to be spent in the UK. I think we need to have a wider conversation—maybe the Committee can look into this—about the long-term costs of inaction. What are the long-term costs to the UK economy of people not having the same pensions when they retire? What are the long-term costs if the birth rate continues to fall at the current rate? What are the long-term costs if people are not able to accumulate as much wealth as our parents generated? There is a really strong economic case to be made here as well.

A lot of the evidence we have received talks about the heavy psychological burden of the amount of debt. You have stated very large figures that people face early in their careers—a £50,000 debt going up to £70,000 and beyond. Would you favour changing the terminology here? Obviously there are lots of other changes that we can undertake within the system, so I am not trying to say that simply rebranding it is a solution to all the issues you have put on the table, but do you think there is a case for looking at things differently—not as debt and not as loans?

Is that a reference to graduate tax discussions?

Either the graduate tax or Sir Philip Augar’s idea of a graduate contribution system. Would you favour that as a potential element of the sorts of changes that we might recommend?

For us, that is very much secondary, to be honest with you. I have hundreds of conversations with students and graduates, and for me, it is about those changes to the terms. Whatever you describe it as, a contribution very much insinuates that you are paying something out. “Tax” very much insinuates—and is correct in saying—that that is money coming out of your pocket. There may be polling saying that one is preferable to the other, but for me the absolute fundamentals of policy are where we need to be leaning.

Where most graduates do not pay back the whole of their loans and experience this more as a tax, it is self-evident that a word like “contribution” is a more accurate way of describing it. As a union of scientists and others, a kind of evidence-led approach is right there. However, if you change only the name and then go to graduates and say, “This problem is sorted,” they will very rightly see that that is not the case, and you would probably end up further eroding trust in the system. That consideration needs to be part of a bigger picture.

Just changing the name is akin to rearranging the deckchairs on the Titanic, to be quite honest with you. People have known it as a student loan for 11 years already. I do not think you are going to get them to suddenly switch their thinking.

On the notion of moving entirely to a tax-based system rather than the present one where clearly terms and conditions have changed and new plans and burdens have been introduced, would it be simpler to have a tax that graduates pay throughout their time as taxpayers?

My concern with that is that there is a lot of confusion already, and there is a lot of explaining that we are already on the journey to doing. If we move to a new system entirely, we must start all over again. There is also the issue that a significant proportion of graduates may then end up paying even more than they do already. It is not something that I would necessarily rule out; there are conversations that need to be had. However, right now there are 5 million young people who need a few very specific policy changes to be made, and that is where we are focusing.

I don’t have anything to add.

It could be looked at going forward. I do not think you could change the existing system to a graduate tax. I do not see how someone who has already paid off their full balance and is then forced to pay a graduate tax for the rest of their career would feel about that.

There would be barricades outside.

I appreciate that you are speaking to a Committee of ageing millennials and above, but there may be many young people listening to today’s Committee, which is being livestreamed on BBC Parliament. Does the panel have any words of advice for those who are going into university or maybe repaying their loans right now, both on how they should think about the contract that they are entering and on how to make their voices heard in this debate?

It has become clearer that university is costing more and the benefit derived from university has been getting smaller over the last 20 years. I would strongly encourage people to think about it and consider alternative options. If I were in the same position again, I would consider a degree-level apprenticeship or something like that. However, I would definitely not discourage people from going to university, because the research shows that it tends to be people from lower-income backgrounds who are most debt-averse. We must be careful not to end up putting people off going to university, which could harm social mobility. I think that our campaign has shown that, as a generation, we do really need to stand up for ourselves when it comes to economic issues, because I think older generations do that very well, and they are rewarded with policies such as the triple lock, for example. They vote and that is why they get those things. If we just lie down and let this wash over us, then we do not really stand a chance, to be honest with you.

Mr Gardner, you said that you teach economics. Do you do that in a school setting?

Yes, I teach A-level economics.

So if you had not gone to university, you would not be able to teach. There are attempts to have apprenticeships for teachers, but it is not mainstream yet, so you would not be an economics teacher if you had not gone to university.

That is true, yes.

Do you think there could be a crisis if people took that advice? Could we end up with whole professions that just do not exist?

Potentially, yes. I do think that is the case. The interest is very contentious, and I know that lots of people think it is the biggest issue. We have argued that the threshold freeze is a larger issue. It is the middle earners—the public sector workers—who will repay the most. It is not your investment bankers and lawyers, because they will pay it back really quickly. We need to think hard about who these plans actually hit worse.

So perhaps we need to track where we are seeing drop-offs. We do not have enough physics teachers, for example.

Exactly.

Broadly, as a union of STEM and creative people, we would point young people toward gaining those skills—in an economy that is changing quickly, that is really important. They may want to do that at university, or through a vocational route, but making sure you stay in some kind of education and gain skills is going to be critical. People should continue to do that through their careers. Of course I would say that a voice through a trade union is critical. It is right that those people have a voice in the political debate and make themselves heard and felt. I would encourage that.

University is still worth it. If you are looking at your options at the moment and it comes out as No. 1, go to university—it is absolutely an investment. I understand that there are financial challenges that come alongside it, but it changed my life and it will probably change yours, too. I would say to graduates that we do need to keep fighting. We need to keep talking about this. We are only here today because the conversation and the noise have got so loud. That is how policy change happens. It is not fair that we have been punished for having the ambition to go to university, but I hope that, through the momentum that has come out of today, and from the conversation more widely, we will have the opportunity to unfreeze our futures.

I thank our witnesses—Alex Stanley, vice president at the National Union of Students, Kieran Walters from Prospect, and Oliver Gardner, founder of Rethink Repayment—very much indeed. That was a really interesting session as part of our work on intergenerational fairness. We are hoping to produce a report on this before the summer, so if anyone is interested, our next session is next week, in the afternoon of 10 June. We will have Chief Secretary to the Treasury Lucy Rigby and Skills Minister Jacqui Smith before us to pick up some of these points. We are working with our sister Committee, the Education Committee, so some of its members will be attending. I thank you all very much indeed for your time.