Why Martin Lewis is right about Kemi Badenoch’s student loan plan

Alex Marsh

Tue, 24 February 2026 at 7:58 pm GMT+9 4 min read

Martin Lewis interrupted Kemi Badenoch’s interview on Good Morning Britain as she defended her student loans proposal - Pixel8000

Martin Lewis challenged Kemi Badenoch on live television when she said she was “sticking up for young people in the student loan trap”.

The personal finance expert said Ms Badenoch’s pledge to scrap supplementary interest of up to 3pc above the rate of inflation on student loans would fail to help lower and middle earners.

Mr Lewis said the reality of the Tory leader’s promise was that only the highest earners would benefit. Is he right?

High earners win …

At the moment, graduates who took out Plan 2 student loans – who attended university between 2012-2023 – contribute 9pc of their salary over £28,470 to pay back the debt.

Although Plan 2 debt is written off after 30 years, on average graduates must earn around £66,000 a year before they start to reduce their balances because of high interest rates.

Interest is added at the rate of retail prices index (RPI) inflation – currently 3.2pc – for those with income up to £28,470, at RPI plus 3pc for those with income above £51,245, and at a variable rate between.

For the highest earners who are likely to pay off their entire loan before it is wiped, an interest rate reduction could save them tens of thousands of pounds over their career.

Yet for low and middle earners who make repayments but are unlikely to ever pay back their loans in full, reducing the interest rate would do nothing to help. They would keep paying 9pc of their earnings above the threshold until 30 years have passed and the debt is wiped.

As Mr Lewis pointed out, uprating repayment thresholds would be the best way to help the majority of graduates.

Chancellor Rachel Reeves has fixed the repayment threshold at the April 2026 amount – £29,385 – until 2030. The freeze means more workers will be dragged into making larger repayments than if the threshold had been uprated by inflation.

… while middle earners to be hit hardest

Plan 2 loan agreements taken out for the 2022-2023 academic year – the last year before the introduction of Plan 5 loans – stated that thresholds would rise in line with average earnings growth each year. Instead, the threshold has risen only sporadically.

Research by the Institute for Fiscal Studies (IFS) found that middle-earning graduates – with an average annual income of £56,000 over their career – will be hit hardest by these threshold freezes.

Kate Ogden, an economist at the think tank, said a Plan 2 interest rate reduction could “substantially reduce” the lifetime loan repayments of high-earning graduates.

However, for many lower-earning graduates a lower interest rate will not reduce the amount they repay towards their loans.

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“This is because monthly repayments reflect a graduate’s income, rather than their outstanding loan balances, or the interest added,” Ms Ogden said.

Campaigners have called on the Chancellor to reverse her decision to freeze the Plan 2 repayment threshold.

Tom Allingham, a student loans expert at Save the Student, said: “Kemi Badenoch’s plan to ‘fix’ student loans is a good start, but there’s plenty of room for improvement, and it misses a key point which risks further entrenching one of the key misunderstandings about repayments.

“We support cutting student loan interest rates – and crucially, switching to the lower and more widely used CPI [consumer prices index], not RPI as Badenoch has proposed.”

He added: “If the Conservatives – or any other party – want to ease the present burden of student loans, then the repayment threshold must increase annually with earnings, as was promised when Plan 2 loans were introduced.”

From 2027, the repayment threshold for Plan 5 loans – those taken out by students since September 2023 – is set to increase with RPI from the current level of £25,000.

For these loans, interest is charged at the RPI inflation rate, with the debt written off after 40 years.

The IFS has said that those with Plan 2 loans who started courses in 2022 can expect to repay around £8,700 more on average than if they had taken out a Plan 5 loan the following year.

A government spokesman said: “We inherited the student loans system, including Plan 2, 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.”

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