5 million graduates caught in student loan threshold dispute

Chancellor John Healey faced pointed questions from Martin Lewis this week after his latest Budget failed to reverse a controversial change to student loan terms. The exchange took place on ITV, where Lewis accused the government of breaking a promise made to millions of young borrowers.

The issue centers on the Plan 2 repayment threshold. In the Autumn Budget 2025, former Chancellor Rachel Reeves raised this figure to £29,385 effective April 2026. She also froze the amount for three years starting in April 2027. Lewis argued that this freeze breaks the original agreement signed by approximately 5 million people, many of whom were 18 years old when they took out their loans. He told Healey that the original contract stipulated thresholds would rise in line with average earnings. Lewis called the current situation a breach of natural justice and described it as morally reprehensible.

Healey acknowledged the frustration of the generation trying to establish their finances. He explained that he could not take the desired action in this Budget because household budgets are already under pressure. He cited the Middle Eastern conflict and trade tensions as key drivers of current financial constraints. Healey stated he had to prioritize immediate help for households facing high energy bills during the winter and reducing costs for businesses.

Lewis pushed back on the timing, noting that each year the freeze continues creates a knock-on effect for the 30-year repayment period. He warned that low to middle earners could face thousands of pounds in extra costs because of the delayed adjustments. Healey agreed he understood the impact but maintained that his focus was on the most immediate priorities. Lewis concluded by saying people would make their own judgments on the Chancellor’s response.

This debate follows a July 2026 report by the UK Parliament’s Treasury Committee titled Student loans: broken and unfair. The report was based on an inquiry that received more than 52,000 public responses. The committee concluded that the Treasury has a moral obligation to reverse the decision to freeze thresholds. They also found that the Department for Education and the Student Loans Company mis-sold loan terms by not clearly explaining that conditions could be changed retrospectively.

Dame Meg Hillier, chair of the Treasury Committee, said the government has committed to updating information so prospective students are properly informed. She noted that while this is a step forward, it does not help current graduates who are facing punitive repayment terms. Hillier emphasized that the Treasury has not ruled out reversing the freeze and urged the Chancellor to consider the issue again in future budgets to give graduates breathing space.

The government stated that all aspects of the student finance system are currently under review. Healey’s comments suggest the issue remains a top priority for the Chancellor, even if the specific threshold freeze remains in place for now.