How Andy Burnham Could Tackle Student Loan Debt: Five Options and What Each Would Save Graduates
The new Prime Minister has announced nothing on student finance. These are the five reform options credibly on the table, and what independent modelling says each would be worth to a borrower
Key Takeaways
- Andy Burnham became Prime Minister on 20 July 2026, replacing Sir Keir Starmer. No student loan policy has been announced. Everything set out on this page is an option or an outside proposal, not government policy.
- Five options are credibly in play: reversing the Plan 2 threshold freeze, cutting Plan 2 interest to RPI, replacing loans with a graduate tax, a stepped repayment system, and cutting the 9% repayment rate.
- Reversing the threshold freeze is the smallest and cheapest change. The Institute for Fiscal Studies puts the average saving at £260 a year. IPPR modelling suggests £55 a year for someone on £30,000 and £170 a year for anyone on £40,000 or more.
- Cutting Plan 2 interest to RPI would reduce average lifetime repayments for 2022-23 course starters by around £11,000, but it would not change most graduates' monthly repayments, because those depend on earnings and not on the size of the balance.
- Lucy Powell was appointed Education Secretary in the same week and said on 28 July that the system is “very much at the top of my in-tray”. Until something is legislated, your threshold, repayment rate, interest and write-off date are unchanged.
Read this before you read anything else
None of the five options below is government policy. No announcement has been made by the Prime Minister, the Chancellor or the Department for Education. Some of these ideas come from think tanks, one comes from the opposition, and two come from a person who now works in Downing Street but published them before he did.
Do not make financial decisions on the basis of proposals. Do not delay an overpayment, take on other borrowing, or change your pension contributions because you expect student loan reform. Every figure on this page is an estimate produced by a third party, and every one of them would change if a policy were actually designed and costed by the Treasury.
In this article
Why Student Loans Are Suddenly in Play
Andy Burnham became Prime Minister on 20 July 2026, replacing Sir Keir Starmer. He sits as the Labour MP for Makerfield, and he arrived in Downing Street promising to put the cost of living at the centre of his government.
Student loans are one of the few levers a Prime Minister can pull that lands directly on the payslips of people in their twenties and thirties. That is why reform is expected to be looked at, and why the options below are being discussed in Westminster. It is not why any of them will happen.
Lucy Powell was appointed Education Secretary in the same week. Asked about student finance on 28 July, she said the system is “very much at the top of my in-tray”. That is a statement of intent, not a policy, and it is currently the strongest signal on the record.
The state of play, stated plainly
A new Prime Minister with a stated interest in reform, an Education Secretary who says the system is at the top of her in-tray, a select committee report published two weeks earlier calling for one specific change, and no announced policy of any kind.
Who is in the room
- Andy Burnham, Prime Minister since 20 July 2026, who in his 2015 Labour leadership bid pledged to replace tuition fees with a graduate tax.
- Lucy Powell, Education Secretary, who has said the system is at the top of her in-tray but has committed to nothing.
- James Purnell, Burnham's chief of staff and former vice chancellor of University of the Arts London, who has published two separate reform models of his own.
- Carys Roberts, economic adviser to Burnham, formerly executive director of IPPR, where the think tank argued against cutting student loan interest rates.
The Debt Pile Burnham Inherits
Student Loans Company figures show total outstanding UK student loan debt reached £292.21bn in 2024-25, up from £259.04bn the year before. That is the number any reform has to be measured against.
| Nation | Outstanding student loan balances, 2024-25 |
|---|---|
| England | £266.59bn |
| Wales | £10.61bn |
| Scotland | £9.4bn |
| Northern Ireland | £5.61bn |
| UK total | £292.21bn |
Plan 2 loans were taken out by students starting undergraduate courses in England between 2012 and 2023, and are still issued in Wales. For some borrowers the balance has grown beyond the amount originally borrowed, because interest accrued faster than repayments reduced the debt. That single mechanic is what makes the interest options below politically loud and financially quiet. See Plan 2 explained for the rules as they stand today.
Option 1: Reverse the Plan 2 Threshold Freeze
The 2025 Budget under Starmer set the Plan 2 repayment threshold to rise to £29,385 from April 2026 and then freeze at that level until 2030. Reversing that freeze is the smallest change on this list and the one with the clearest constituency behind it.
The Treasury Committee called for exactly this on 7 July 2026, two weeks before Burnham took office. Because the threshold is set administratively rather than through primary legislation, it is also the option that could move fastest.
What it would cost
Around £400m in the medium term, and it would increase public borrowing by £5.6bn, according to the Office for Budget Responsibility and the IFS. The gap between those two numbers is the accounting treatment of loans that are never repaid, and it is the reason a change that feels modest on a payslip does not look modest to the Treasury.
Work out your own exposure: the Plan 2 threshold freeze guide sets out the mechanics year by year, and the career progression calculator shows how the freeze compounds as your salary rises.
Option 2: Cut Plan 2 Interest to RPI
Plan 2 interest currently runs from RPI up to RPI plus 3% depending on income, which on the current 4.1% RPI basis means 4.1% to 7.1% uncapped, held at the 6% cap. Removing the 3% margin so that Plan 2 tracks RPI only is the Conservative proposal, backed by leader Kemi Badenoch.
It is the option with the largest headline number attached to it and the smallest effect on what most people actually pay each month.
The catch, and it is a big one
Cutting the interest rate reduces your balance and makes full repayment more achievable. It does not change most graduates' monthly repayments, because repayments are calculated on earnings above the threshold, not on the size of the debt.
If you are one of the many borrowers who will never repay in full before write-off, a lower interest rate is worth nothing to you at all. Your balance shrinks on paper, your deductions stay identical, and the debt is cancelled either way.
Applied only to the 2022-23 starting cohort, the change could cost the taxpayer around £4bn in today's prices. Extending it across every Plan 2 borrower would multiply that.
The opposition inside Downing Street
Carys Roberts, Burnham's economic adviser, is likely to oppose this one. While she was executive director of IPPR, the think tank argued against cutting student loan interest on the grounds that it only benefits higher earners and that the gains take many years to materialise. That is the same distributional objection the IFS numbers illustrate: the biggest winners are the graduates who were always going to repay.
Already partly done: separately from any of this, interest on Plan 2 and Plan 3 loans is capped at 6% from 1 September 2026 for the 2026/27 academic year in England and Wales, announced on 7 April 2026. Plan 5 interest is already RPI only. Current figures for every plan are in the student loan interest rates guide.
Option 3: Replace Loans With a Graduate Tax
This is the one with Burnham's own fingerprints on it. In his 2015 Labour leadership bid he pledged to replace tuition fees with a graduate tax, to lift what he called the “millstone of debt” from young people.
Under a graduate tax, universities are state funded and students pay a progressive income tax surcharge once their earnings pass a threshold. There is no balance, no interest and no write-off date, because there is no loan.
James Purnell, Burnham's chief of staff and the former vice chancellor of University of the Arts London, has advocated similar reform. He suggested in 2024 that loans could be scrapped and replaced with a graduate tax. Modelling commissioned by UAL in 2022, while he was vice chancellor, set out one version of what that could look like.
The 2022 UAL graduate tax model
| Earnings band | Graduate tax rate |
|---|---|
| £12,570 to £50,270 | 3% |
| Above £50,270 | 5.5% |
The tax would be levied until retirement rather than for a fixed 30 or 40 years, and the modelling found it would cost the Treasury nothing to implement.
On the average salary of £39,039, that model works out at roughly £66 a month or £794 a year on i Paper estimates. The comparison is £72 a month or £869 a year under current Plan 2 rules, and £105 a month or £1,264 a year under Plan 5. For a Plan 2 borrower the monthly difference is about six pounds in the graduate tax's favour. The structural difference, paying until retirement instead of until write-off, is enormous.
Option 4: A Stepped Repayment System
Purnell's second model keeps loans but abandons the flat 9% above a single threshold. Instead the repayment rate steps up and then back down, and it would save the Treasury £841m per cohort.
The proposed steps, after graduation
| Earnings band | Repayment rate | Interest margin over inflation |
|---|---|---|
| £12,570 to £27,570 | 3% | 0% |
| £27,571 to £57,570 | 6% | Between 0% and 3% |
| £57,571 and above | 3% | 3% |
Interest would stay at inflation plus 3% while you are still studying. The repayment period would be 30 years rather than the current 40.
On the average salary of £39,039 this works out at roughly £95 a month or £1,138 a year on i Paper estimates. That is more than the £869 a year a Plan 2 borrower pays today, and less than the £1,264 a year a Plan 5 borrower pays. The trade is a higher annual repayment for a shorter repayment period, cut from 40 years to 30.
Purnell has said the change could allow maintenance grants to be fully reinstated. Maintenance grants were replaced with loans in 2016, and their absence is one of the reasons the average balance after graduation has climbed to £53,010. If you want to see how the current 40-year clock affects you, the loan write-off checker is the place to start.
Option 5: Cut the 9% Repayment Rate
IPPR proposed halving the repayment rate from 9% to 4.5%. This is the only option that would put money into every affected graduate's pocket immediately, because it changes the deduction itself rather than the balance.
It is also the most expensive, at £5.8bn by 2026-27, and the most regressive in cash terms.
IPPR's own better-targeted version
IPPR argued the policy could be aimed more precisely: halve the rate to 4.5% on earnings up to £50,000, but keep the full 9% on everything above that.
That caps the maximum cash benefit at £969 a year for anyone earning £50,000 or more, so a graduate on £100,000 gains the same amount as a graduate on £50,000 rather than more than three times as much.
What Each Option Is Worth to You
The five options are not measured on the same scale. Two of them change your monthly deduction, one changes your balance without changing your deduction, and two replace the system entirely. The tables below pull the published figures together so you can see which is which.
Annual repayment on the average salary of £39,039
| System | Per month | Per year | Ends when |
|---|---|---|---|
| Plan 2 today | £72 | £869 | Written off after 30 years |
| Plan 5 today | £105 | £1,264 | Written off after 40 years |
| Graduate tax proposal | £66 | £794 | Retirement |
| Stepped repayment proposal | £95 | £1,138 | Written off after 30 years |
A note on the Plan 2 figure. The i Paper published the current Plan 2 repayment on this salary as £68 a month or £815 a year. That does not reconcile with the confirmed 2026-27 threshold of £29,385: nine per cent of the £9,654 earned above it is £869 a year, or about £72 a month. We have used the figure our own calculators produce so the table stays consistent with the rest of the site. The graduate tax, stepped repayment and Plan 5 figures all reconcile exactly and are reproduced as published.
Annual saving by salary, where modelling exists
| Option | £30,000 | £40,000 | £50,000 | £100,000 |
|---|---|---|---|---|
| Reverse the threshold freeze | £55 | £170 | £170 | £170 |
| Halve the repayment rate to 4.5% | Not modelled | £519 | Not modelled | £3,219 |
| Targeted 4.5% up to £50,000 only | Not modelled | Not modelled | £969 cap | £969 cap |
| Cut Plan 2 interest to RPI | No change to monthly repayments at any salary. Around £11,000 lower lifetime repayments on average for 2022-23 starters, more than £20,000 for the top 30% of lifetime earners, and nothing at all for those who never repay in full. | |||
What each option would cost
| Option | Estimated cost or saving to the public finances | Estimate from |
|---|---|---|
| Reverse the threshold freeze | £400m in the medium term, and £5.6bn added to public borrowing | OBR and IFS |
| Cut Plan 2 interest to RPI | Around £4bn in today's prices, for the 2022-23 starting cohort alone | IFS |
| Graduate tax | Nothing to implement, on the 2022 modelling | UAL commissioned modelling |
| Stepped repayment system | Saves £841m per cohort | James Purnell |
| Halve the repayment rate to 4.5% | £5.8bn by 2026-27 | IPPR |
How to read these tables: every figure above is a third-party estimate produced by the Institute for Fiscal Studies, IPPR, the Office for Budget Responsibility, University of the Arts London or The i Paper. None of them is a government costing, because there is no government policy to cost. The salary figures assume the option is applied as described by whoever proposed it, with no transitional rules, no cohort restrictions and no interaction with other taxes. A real policy would have all three.
What This Means for Your Repayments Now
Nothing. That is the honest answer, and it is worth stating clearly before anyone changes a standing order. Here is what is settled and what is not.
Settled right now
- Plan 2 threshold £29,385, 9% above it
- Plan 5 threshold £25,000, Plan 1 £26,900, Plan 4 £33,795
- Postgraduate Plan 3 threshold £21,000 at 6%
- Plan 2 interest 4.1% to 7.1% by income, capped at 6% since 1 September 2026
- Plan 5 interest RPI only, currently 4.1%
- Write-off after 30 years on Plan 2, 40 years on Plan 5
Completely open
- Whether the Burnham government touches student loans at all
- Whether the threshold freeze is reversed at a future Budget
- Whether any change applies retrospectively or to new borrowers only
- Whether a graduate tax is ever put to Parliament
- Whether maintenance grants return
Practical advice: the decision about whether to overpay still turns on one question, which is whether you are on track to clear your balance before write-off. If you are, a lower interest rate or a lower balance genuinely helps you. If you are not, none of these options changes what you pay, only what the statement says. Check your position with the monthly repayment calculator and the interest calculator before you act on any of it.
If you want the wider political context, our tracker of political party loan policies covers what each party has actually committed to, and the Plan 2 vs Plan 5 comparison shows why the same reform lands so differently depending on which plan you are on.
Sources
- Alexa Phillips, “How Burnham could tackle student loan debt and how much graduates could save”, The i Paper, 22 July 2026. Source of the option list, the i Paper monthly and annual estimates, and the Student Loans Company debt figures. inews.co.uk
- Treasury Committee news release, “Government has moral obligation to reverse freezing of student loans repayment threshold”, 7 July 2026. committees.parliament.uk
- GOV.UK, “Interest rate cap introduced to protect Plan 2 borrowers”, 7 April 2026. Source of the 6% cap applying from 1 September 2026. gov.uk
- Institute for Fiscal Studies, Options for changing Plan 2 student loans: costs, benefits and distributional effects. Source of the lifetime repayment estimates for interest rate changes. ifs.org.uk
Frequently Asked Questions
Will student loans be written off under Andy Burnham?▼
There is no proposal to cancel existing student loan debt, and the Burnham government has announced no student loan policy of any kind. None of the five options being discussed involves writing off outstanding balances. Existing write-off rules are unchanged: Plan 2 loans are cancelled 30 years after the April you were first due to repay, and Plan 5 loans after 40 years.
Is the UK getting a graduate tax?▼
No graduate tax has been proposed by the government. Andy Burnham pledged one during his 2015 Labour leadership bid, and his chief of staff James Purnell suggested in 2024 that loans could be scrapped and replaced with a graduate tax, but neither is government policy. The 2022 modelling commissioned by University of the Arts London set a rate of 3% on earnings between £12,570 and £50,270 and 5.5% above £50,270, levied until retirement. That is one think-tank-style model, not a bill before Parliament.
Will the student loan repayment threshold go up?▼
Not on current policy. The 2025 Budget set the Plan 2 threshold to rise to £29,385 from April 2026 and then freeze there until 2030. Reversing that freeze is the option most likely to happen, because the Treasury Committee formally called for it on 7 July 2026 and because it is the cheapest change on the list. It has not been announced. If it were reversed, the IFS estimates an average saving of £260 a year, and IPPR figures suggest £55 a year for someone on £30,000 and £170 for someone on £40,000 or more.
Would cutting Plan 2 interest to RPI lower my monthly repayments?▼
For most people, no. Student loan repayments are 9% of everything you earn above the threshold, so they depend on your salary and not on your balance. Removing the 3% margin above RPI would slow the growth of your debt and make full repayment more achievable, which the IFS values at around £11,000 off average lifetime repayments for 2022-23 course starters and more than £20,000 for the 30% of graduates with the highest lifetime earnings. If you will never clear your balance before write-off, it is worth nothing to you.
How much would cutting the 9% repayment rate save me?▼
On IPPR's proposal to halve the rate from 9% to 4.5%, someone earning £40,000 would save £519 a year and someone on £100,000 would gain £3,219, six times as much in cash terms. IPPR itself pointed out the policy could be better targeted by halving the rate only up to £50,000 and keeping 9% above that, which caps the maximum benefit at £969 a year. The full version would cost £5.8bn by 2026-27. Neither version has been adopted by any government.
Has the Burnham government announced any student loan policy?▼
No. Andy Burnham became Prime Minister on 20 July 2026 and no student loan policy has been announced. Education Secretary Lucy Powell said on 28 July that the system is “very much at the top of my in-tray”, which is the strongest signal on the record so far. Until a policy is announced and legislated or implemented through regulations, your threshold, repayment rate, interest rate and write-off date all stay exactly as they are.
Related Resources
Plan 2 Threshold Freeze Guide
The freeze Option 1 would reverse, and what it costs you year by year
Political Party Loan Policies
What each party has actually committed to on student finance
Plan 2 vs Plan 5
Why the same reform lands differently depending on your plan
Monthly Repayment Calculator
What you pay today under the rules that are actually in force
Student Loan Calculator UK Editorial Team
Editorial Team
This page is maintained by the Student Loan Calculator UK editorial team, checked against GOV.UK and Student Loans Company guidance. Read more about our editorial approach.