For many graduates, student loan repayments feel less like paying off a debt and more like a tax that never ends. The government has launched a Treasury Committee inquiry into whether the terms of Plan 2 loans are reasonable. For parents and grandparents watching younger family members navigate this, it’s worth understanding what the debate is about, and what you can do to help.
The problem with Plan 2
Plan 2 student loans were offered between 2012 and 2023. Graduates repay 9% of everything they earn above £28,470 a year. Any balance remaining after 30 years is written off.
The controversy is the interest rate. Plan 2 loans charge inflation plus 3%. In 2026/27 that’s 6.2%. For comparison, Plan 1 graduates pay 3.2%. For many Plan 2 graduates, the loan balance is growing faster than their repayments can reduce it. They’re paying every month and still falling further behind.
Plan 5 loans, introduced in 2023, carry lower interest. But the repayment threshold is lower at £25,000, and the debt isn’t written off for 40 years rather than 30. The headline terms look better. The long-term commitment is heavier.
What might change
The inquiry is considering several options. The Conservative Party has proposed capping interest to remove the above-inflation element on Plan 2 loans. The Liberal Democrats have proposed raising the repayment threshold in line with average earnings each year. Campaign group Rethink Payments has proposed a broader package: lower interest, a higher threshold, and cutting the repayment rate from 9% to 5%.
None of this is settled. The inquiry may recommend something different, or nothing at all. But the current terms are under real pressure.
What this means for families
The financial consequences of student loans extend well beyond the graduate. According to Barclays, savers with student loans put away £2,000 less each year towards a house deposit than those without. Over five years, that’s £10,000. A meaningful chunk of a deposit, gone before it was ever saved.
A child carrying a large loan balance isn’t just managing debt. They’re delaying the milestones that matter: a home, financial security, the freedom to make choices.
Here are three ways you can help.
1. Have an honest conversation before the decision is made
A BBC investigation found that school presentations about student loans between 2011 and 2017 avoided the word “debt” and compared borrowing tens of thousands of pounds to a £30-a-month phone contract. Some young people signed up without understanding what they were committing to.
Taking out a student loan to go to university is not the wrong decision. But it should be an informed one. If you have children or grandchildren approaching that choice, talking through the long-term financial reality is one of the most useful things you can do.
2. Help a graduate who is struggling
When student loan repayments sit alongside rising living costs, the financial pressure on graduates is real. If you’re in a position to help, either through regular support or a one-off gift, it can make a material difference to someone trying to save, get on the property ladder, or simply keep their head above water.
We can help you work out how financial support might affect your own position and how to structure gifts tax-efficiently.
3. Start planning early for a younger child
If you have grandchildren or young children, the best time to start thinking about university costs is now. Regular contributions to a savings account from birth can build into a meaningful sum by the time they turn 18, reducing how much they need to borrow, or removing the need entirely.
The families who plan for this early don’t just save money. They give their children choices. That’s what good planning looks like in practice.
Living well means being able to support the people you love when it matters. We can help you make education costs part of your wider financial plan, whether the university place is this year or fifteen years away. Please get in touch.
This article is for general information only and does not constitute advice. The information is aimed at individuals only. All information is correct at the time of writing and is subject to change. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
