Lib Dems announce plan to urgently cut student loan repayments amid cost of living crisis

EMBARGO: Immediate Release

• Lib Dems call for overhaul of the student finance system to reduce the burden on graduates struggling with the cost of living.
• Party says some public sector workers including nurses, doctors and teachers should have a proportion of their debt written off after 10 years of dedicated public service.
• Under the Liberal Democrats’ plans, a graduate earning £35,000 would see their monthly repayments halved within three years, whilst maintenance grants of £3,500 would be reintroduced for disadvantaged students, after having been scrapped by the Conservatives. 
• Party calls for a Royal Commission to look into long-term changes to the student finance system and forge a cross-party consensus.

The Liberal Democrats have announced a plan to urgently reduce the spiralling cost of student finance, scrapping planned repayment threshold freezes and putting money back in the pockets of graduates struggling with the cost of living.

Under the Liberal Democrats’ plans, a typical British graduate earning £35,000 would see their loan repayments cut by half within three years, putting an extra £280 a year back in their pocket. The reforms would also give graduates an immediate boost of nearly £100 in the coming year, while the lowest earning graduates could save up to £5,000 over the lifetime of their loan.

The party is calling for some public sector workers including nurses, teachers, police officers and military personnel to have a proportion of their student debt written off after ten years of service. This incentive would help address recruitment and retention challenges in the NHS and schools while recognising the vital contributions of those who dedicate their careers to serving the country and their communities.

The Liberal Democrats would immediately reverse the three-year repayment threshold freeze introduced by the Labour government. The threshold would also increase in line with average earnings rather than RPI, allowing it to rise faster and ensuring graduates keep more of what they earn than under the current system.

The party would create an independent body to oversee student loan repayment terms and protect graduates from retrospective changes, as both Labour and the Conservatives have previously introduced. This body would depoliticise key elements of the system, including repayment thresholds, interest rates, and loan terms, in a similar way to how the Low Pay Commission sets the minimum wage.

The party would also restore maintenance grants of £3,500 a year for disadvantaged students which were scrapped by the Conservative government from 2016.

Looking further ahead, the Liberal Democrats are calling for a Royal Commission to be established to look into long-term reforms to the student finance system, including replacing RPI with a fairer interest rate. The party said this would help forge a cross-party consensus over how to build a fairer system for graduates while supporting the world-leading university sector.

Liberal Democrat Universities Spokesperson Ian Sollom MP said:

"The current student finance system is broken, leaving graduates facing soaring repayments on terms they never signed up for.

"Our plans would cut monthly repayments for a graduate earning £35,000 by half within three years, and restore maintenance grants for those who need them most. We will create an independent body to oversee student finance and protect graduates from the government constantly moving the goalposts at their expense.

“We’d also reward public sector workers who dedicate their careers to serving the country, whether in the NHS or on the front line, by writing off a proportion of their student loan after 10 years of public service.

"My party paid a heavy price for making promises on tuition fees that we couldn't keep. We've learned from that, which is why today we're setting out a proposal that is pragmatic, deliverable, and would make a real difference.

"But the system also needs fundamental reform that lasts beyond any single parliament. That's why we're calling for a Royal Commission to build a cross-party consensus and a fairer system for graduates in the long-term.”

ENDS

Notes to Editor

Under the initial system agreed following the Browne Review, the Coalition Government increased tuition fees and introduced what is now known as the Plan 2 repayment scheme. This also had in-built protection that made repayments progressive, and crucially, had guarantees of uprating repayment threshold with average earnings. Maintenance grants for the poorest students were maintained.

After the Liberal Democrats left Government, the Conservatives scrapped maintenance grants and have instead repeatedly frozen the repayment thresholds. The most significant change came in early 2022, when the Conservative government under Boris Johnson froze the threshold at £27,295 for three years and changed the default indexation from average earnings to RPI [IFS, 2026]. Now, the Labour Government has also announced a freeze on the repayment thresholds for a further three years, then uprating them with RPI after that point.

Furthermore, the Conservatives introduced Plan 5 loans, extending the repayment period to 40 years, and lowering the threshold for new graduates to £25,000 per annum.

These changes have transformed the initial system which the Liberal Democrats helped establish, into a tool through which successive governments have raised increasing amounts of tax on the back of squeezed graduates.

Our policy approach has been to mitigate many of these unacceptable changes, with a focus on the most disadvantaged. That is why we are calling for an urgent uprating of the thresholds, and restoring the more generous wage-growth-index instead of RPI so graduates keep more of their hard-earned money. We would also reintroduce maintenance grants so the poorest students will graduate with less debt.