New UK Education Secretary Lucy Powell Calls Student Loan Interest Rates 'Egregious,' Promises Review But No Fixes Yet

Lucy Powell, Labour's deputy leader and the UK's new education secretary, told BBC Radio 5 Live she wants to make student loan repayments 'fair' for graduates, and that the issue is now at the top of her priority list.

Powell was blunt about her personal view. Speaking to presenter Matt Chorley, she confirmed she stands by comments she made in February calling the interest rate on Plan 2 loans 'egregious.' She said becoming education secretary hasn't changed that opinion.

'I think it's not just about the threshold of when people start to pay it back, but also the interest rate, which is RPI plus 3%,' Powell said, according to the BBC. 'I think I've called it in the past egregious and I'm not going to change my opinion on that just because I'm now the secretary of state.'

Plan 2 loans cover students who started courses in England between September 2012 and July 2023, and they're still being issued in Wales. Graduates repay 9% of everything they earn above a set threshold. Powell has a personal stake in the issue beyond politics: she told the BBC her eldest child holds a Plan 2 loan.

The Freeze That Started This Fight

The current controversy traces back to a decision by then-Chancellor Rachel Reeves in November 2025. Reeves froze the Plan 2 repayment threshold at £29,385 from 2027 through 2030, instead of letting it rise with inflation as originally planned.

That sounds like a technical tweak. It isn't. Freezing the threshold while wages rise means graduates start repaying sooner, and as their salaries climb, they hand over more money each month. Reeves defended the move at the time as 'fair and proportionate' for balancing tax and spending, according to the BBC.

Campaigners want that freeze reversed. Powell didn't commit to doing that. When pressed directly on whether she'd act, she said only: 'Yes. I can't make any promises, but it needs looking at.'

That's a real answer, and credit where it's due, it's not a dodge dressed up as one. But 'needs looking at' from a secretary of state who called the system egregious back in February, and is still calling it egregious in office, tells you the government hasn't found a fix yet, or hasn't found the money for one.

There was a partial move already. In April 2026, the government capped interest on some English student loans, including Plan 2, at 6%, according to the BBC. That's something. It's not what campaigners are asking for on the threshold freeze, and it doesn't touch the core complaint Powell herself is making, that graduates can pay for years without ever touching the principal.

Parliament Already Flagged a Bigger Problem

This month, MPs on the Treasury Committee said something more serious than a policy disagreement. They found that government comparisons of student loan repayments to things like phone contracts or cinema tickets 'amounted to mis-selling,' according to the BBC.

That finding followed a BBC investigation showing the government compared loan repayments to £30-a-month phone contracts in presentations pitched to teenagers roughly a decade ago. If a private lender did that, marketing a variable-rate, decades-long debt obligation as equivalent to a phone bill, regulators would have something to say about it. A Treasury Committee calling it mis-selling by the government itself is a genuinely notable admission, not just partisan sniping.

A parliamentary committee concluded the system was sold to teenagers in a misleading way. That's a fact question, not a spin question, and it deserves more attention than it's gotten.

The Other Side of the Ledger

Reeves's defense deserves a fair hearing too. Student loan repayment thresholds and interest rates are a real fiscal lever. Every pound not collected from graduates through the freeze reversal has to come from somewhere else in the budget, either other spending cuts or higher taxes on someone else. 'Fair and proportionate' balancing of tax and spending isn't an empty phrase, it's the actual tradeoff any chancellor faces.

Conservative leader Kemi Badenoch has proposed capping Plan 2 interest at RPI only, dropping the extra 3%, according to the BBC. RPI currently sits at 3%, so her plan would roughly halve the current 6% cap introduced in April. That's a specific, costed alternative on the table, not just criticism from the opposition benches.

None of this is resolved. Powell has given herself no deadline and made no promise beyond acknowledging 'it needs looking at.' Graduates on Plan 2 loans keep paying 9% above threshold at rates up to 6% under the current cap, with the threshold frozen through 2030 regardless of who's currently annoyed about it in Westminster.