Chancellor Rachel Reeves has said Britain’s student loan system is “broken” but confirmed that reform is not among the Government’s immediate priorities.
Speaking during a Q&A following her Mais lecture in the City of London on March 17, she pointed to the state of the public finances as the main constraint.
“Yes, the student loan system is broken,” she said. “But if you try to fix everything straight away, everything will fall over.”
Ms Reeves added recent geopolitical tensions had exposed the UK’s fiscal vulnerabilities.
“We have precarious public finances, and that has also been thrown into stark relief in the last few weeks since the conflict in the Middle East erupted.”
She said other issues must take precedence, including the fact that one in six young people are currently not in education, employment or training.
Reducing NHS waiting lists, tackling child poverty, including scrapping the two‑child benefit cap, and increasing defence spending were also listed as higher priorities.
“Politics is about priorities,” she said. “I’m not denying there is a problem… but there has to be some patience. We can’t fix everything straight away.”
The Chancellor said public finances will limit reform despite rising graduate debt levels
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Her comments come as new figures from the Student Loan Company show interest accumulating on student debt at a rate of £482 per second during the 2024–25 financial year.
A total of £15.2billion in interest was added to graduate balances over the period, while £5billion was repaid.
Interest charges have risen sharply in recent years: in 2021/22, they totalled £4.7billion.
Outstanding student debt has now reached £266.6billion, up from £236.2billion the previous year.
Plan 2 loans carry interest rates of RPI + three per cent
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Plan 2 loans carry interest rates of up to three percentage points above RPI inflation, with higher earners charged more on a sliding scale.
Dr Arthur Joustra, a paediatric trainee in the NHS, said he borrowed £55,000, has repaid around £10,000, yet now owes £72,000.
“The debt is just creeping up in the background and there’s not really an awful lot you can do about it,” he said.
Oliver Gardner, from campaign group Rethink Repayment, said the system no longer feels like a conventional loan.
“At that point, it stops feeling like a loan and starts feeling like a penalty for going to university,” he said.