Campaigners are calling for the government to change the system
Mandy Winstanley and Dean Osgood(Image: Jamie Greer/Liverpool ECHO)
Workers in Merseyside have said they are in a “debt trap” with one claiming he can’t afford to pay into his pension. Dean Osgood, 32, from Birkenhead, works as a teacher in the region. Dean says he is penalised every month thanks to his student loan repayments. He is on plan two, which affects English and Welsh undergraduate students who started courses between September 1 2012 and July 31 2023.
His salary threshold, above which plan two graduates have to repay 9% of anything they earn, will rise to £29,385 in April this year, and normally it would have been expected to then rise again each year.
However, Chancellor Rachel Reeves recently announced it will stay frozen at that level until 2030.
The Chancellor’s decision, and the system as a whole, has been slammed by consumer expert Martin Lewis in a series of interventions in the last few months.
Writing on his Money Saving Expert blog last month, he said: “I do not think it is a moral thing for you to do to be freezing the repayment threshold in this way. You didn’t say the terms were variable. This isn’t right. Please have a rethink.”
Mr Lewis added that in his opinion, students had a contract, and the government was “unilaterally changing the terms. You tell companies they can’t do that – you shouldn’t do it either. It would not be allowed for any commercial lender, it would go against all forms of consumer law.”
Dean argues that, due to interest, tied to a measure of inflation, being added on top of repayments and the freezing of the threshold, he and others are at breaking point.
A government spokesperson has told the ECHO that the current system “protects lower-earning graduates, with repayments determined by incomes and outstanding loans and interest being cancelled at the end of repayment terms”.
But campaigners such as Dean and fellow Wirral teacher Mandy Winstanley, who is on plan one, are now calling for widespread changes.
A plan one student loan is an older type of UK student loan for borrowers from England and Wales who started university between September 1998 and September 2012. Repayments are 9% of income over a threshold of £26,065 a year.
Dean said: ”For some of the plans, they go back and are changing the terms of conditions, so I think that’s the issue. At the minute, obviously the government has decided they’re freezing the repayment threshold rather than bringing it up in line as it is done every year with the inflation.
“But we’ve been campaigning for a total reform of the student loan system. So there’s one small battle at a time, and the first battle is stopping this inflation linked rise.
Martin Lewis has accused the government of “unilaterally changing the terms” of student loans(Image: Kate Green/Getty Images)
“You find that people aren’t going to university anymore. You find that people are deliberately not earning as much money because they’re going to have to pay.
“I pay more in student loans than I pay national insurance. I pay £420 a month student loan. Any extra work that I pick up (like) marking exam papers, I don’t see any benefit of it, so people aren’t going to do that as much.”
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Mandy, who is in her 50s and approaching the end of her teaching career, argues the pitfalls of the system were never fully explained to her and she still has debts to pay. She added that one friend of hers is now actively avoiding career promotions and the higher salaries that come with it to avoid having to pay back more of their loans.
Mandy, from Moreton, who took out her loan in 2004, said: ”I was already a lecturer at the time in a college, and then it suddenly came out, oh, if you want to keep your jobs as a lecturer, you have to do this qualification.
“It was a certificate of education. So I remember on induction day, we were told, as part of the induction fill out these for a student loan. I was a single parent at the time.
“Then they said, you don’t need to pay this back unless you’re earning £25,000. I remember a lot of people on my course who were teachers weren’t earning that.
“And a friend of mine has made sure even today that she doesn’t earn that because she will have to start paying back her student loan, which means she’s kept her career down because she can’t afford (the extra payments).
Chancellor Rachel Reeves has faced criticism (Image: Jack Taylor/PA Wire)
“I’m at the end of my teaching career now and I’m still paying that loan. I looked the other day – my balance is £3,700.”
Dean disagrees with the notion that the loan doesn’t actually matter because his debt will be wiped out after 30 years. He said: “Some people will pay back three times what they have borrowed by the time they get to the time it’s wiped off.
“And the phrase wiping off – no, we’ve paid two or three times what we’ve borrowed, you’re just making lots of money in interest. It’s an interest trap. If a private lender was doing this, people would be up in arms.
“Why are we paying interest and if we are to pay interest, why isn’t that reasonable? I am happy to contribute. But I think it’s unfair when we’re trapped, and it is a debt trap, because you’re perpetually stuck in it.”
Mandy argues that, if this continues, some will be put off going to university and those that do will continue to face the consequences.
She said: ”It’s kind of stopping people, isn’t it, from going to university. (Other) people have to go to university to do the career that they want to do, so they are trapped into that for the rest of their life really. Will this play on people’s mental health in university, constantly thinking, how am I going to pay it back?”
Helen Osgood from Community trade union with Mandy Winstanley and Dean(Image: Jamie Greer/Liverpool ECHO)
Dean and Mandy are campaigning for change with the Community union, which represents students. The union produced a “myth buster” booklet in 2024 about student loans as it believes there was not enough information out there to give students a properly informed choice.
Helen Osgood, 57, from Moreton, is an operations director at the union. She said: “I call it a tax on ambition because what I’m hearing more and more anecdotal evidence from people I speak to all the time in the union is that they don’t want to go for a promotion because it means that they just have more student loan payments.
“No-one wants to do it because they’re not feeling the benefit of getting higher pay and better jobs because they’re just then all taken out of their pay. And it’s not just something that’s affecting young people. I think what you can see throughout the system.
Dean said: “I invest in this country, just as this country invested in me, but I’m being held as a prisoner of debt. I think there’s several, simple steps that could be taken. The first one is for Rachel Reeves to reverse the decision to freeze the threshold.
“The second one would be to look at the system and try to reform it. Do we take off interest and let people pay back what they borrowed?
“Do we lower the interest to something that might cover the fees involved in the student loan system? I think there’s work there to be done now.
“I think serious reform needs to be had. I don’t think anything about the system is fair. Do we want a society where people contribute and make work for the greater good? Or do we want a society where people are thinking, well I can’t do that because I can’t afford it?”
In response to these claims, a government spokesperson said: “We inherited the student loans system, including plan two, which was devised by the previous government.
“Threshold freezes have been introduced to protect taxpayers and students now, alongside future generations of learners and workers.
“The student finance system protects lower-earning graduates, with repayments determined by incomes and outstanding loans and interest being cancelled at the end of repayment terms.
“Since we were elected, we have been committed to supporting the aspiration of anyone who can and wants to attend higher education, including by reintroducing targeted maintenance grants to support the Prime Minister’s target of two thirds of young people taking a gold standard apprenticeship, higher training or heading to university by the age of 25.
“This is all alongside our ongoing support for working people starting off in life, as we build 1.5m new homes, expanding government-funded childcare, introducing free breakfast clubs and freezing rail fares.”
