Lucy Powell Stands By Calling Plan 2 Interest “Egregious” and Says Student Loans Are Top of Her In-Tray
The new Education Secretary says the RPI plus 3% interest rate needs looking at, but she has not announced a review and cannot make promises. Here is what that does and does not mean for your repayments.
Key Takeaways
- Education Secretary Lucy Powell said on 28 July 2026 that student loans are “very much at the top of my in-tray” and that she stands by her previous description of the Plan 2 interest margin as egregious.
- She named two things as problems: the earnings threshold at which repayments start, and the interest rate, which she described as RPI plus 3%.
- No formal review has been announced. Powell said the government “has committed to a review”, but that is her characterisation. Asked directly whether she would look at the issue, she replied: “Yes. I can't make any promises, but it needs looking at.”
- Your numbers are unchanged. The Plan 2 threshold is £29,385 for 2026-27, the repayment rate is 9% above it, and Plan 2 interest currently runs from 4.1% up to a maximum of 6% (capped; the uncapped RPI + 3% formula would give 7.1%) depending on income.
- One thing is already settled and is not speculation: from 1 September 2026, Plan 2 and Plan 3 interest is capped at 6% for the 2026/27 academic year in England and Wales, announced back on 7 April 2026.
In this article
What the Education Secretary Said
Lucy Powell, appointed Education Secretary in the week of 20 July 2026, used an interview with Matt Chorley on BBC Radio 5 Live to put student loan reform near the front of her agenda. Her remarks were reported on 28 July 2026 by BBC News and the Evening Standard.
Powell was specific about which parts of the system she thinks are wrong, and she named the interest margin rather than just the headline debt figure.
“I think it's not just about the threshold of when people start to pay it back, but also the interest rate which is RPI plus 3%.”
“I think I've called it in the past egregious and I'm not going to change my opinion on that just because I'm now the secretary of state.”
Lucy Powell, Education Secretary
She then went further, framing repayments as a live household budget problem rather than a distant balance sheet issue. She called it a “real cost-of-living issue” for young people, adding: “They're paying high repayments and never, ever paying off the capital of their student loan.” In the Evening Standard's version of the interview she put a rough timescale on it, saying “it's a real cost of living issue for young people because there's about a 10-year time frame of people on this plan.”
The line that got the headlines
“The government has committed to a review of that, it's very much at the top of my in-tray as the secretary of state, and I want to make sure we look at this so it's fair for students.”
Pressed on whether she would actually look at the interest rate, Powell answered: “Yes. I can't make any promises, but it needs looking at.” That second sentence is the one worth remembering, and it is the reason the rest of this article is about calibration rather than celebration.
She also said she is “very familiar” with the issue because her eldest child holds a Plan 2 loan. That is a useful detail, because Plan 2 is the plan that has taken the most political damage, and it is the plan a serving Cabinet minister is now describing from the inside of a family budget.
Where the Egregious Line Came From
Powell did not invent the word for this interview. She used it in February 2026, speaking to LBC, before she held the education brief:
“The plus 3 per cent, that is particularly egregious, in my humble opinion.”
Lucy Powell, speaking to LBC, February 2026
What changed in July 2026 is not the opinion but the job title. A backbench or deputy-leadership complaint about the interest margin is commentary. The same complaint from the Secretary of State for Education is a signal about departmental priorities, which is why the remarks travelled so far so fast.
Powell is also Labour's deputy leader, and she serves in the government formed by Andy Burnham, who became Prime Minister on 20 July 2026 in succession to Sir Keir Starmer. A new administration reopening a policy its predecessor closed is not unusual, but it is not the same thing as that policy actually changing.
Why This Is Not a Formal Review
Read the headlines carefully
Several aggregator sites headlined these remarks as the Education Secretary launching a student loan review. That is not supported by the BBC or Evening Standard reporting. What Powell said is that the government “has committed to a review”, which is her description of an existing position, not the announcement of a new process. No terms of reference, no chair, no timetable and no scope have been published.
Three things separate a genuine policy change from a ministerial statement of intent. None of them have happened here.
1. A named review with published terms of reference
Reviews that lead anywhere have a scope, a chair and a reporting date. Powell described a commitment in the abstract. Until the Department for Education publishes terms of reference, there is nothing for anyone to submit evidence to.
2. A fiscal event that pays for it
Cutting the interest margin or unfreezing the threshold costs money that has to be found at a Budget. Powell explicitly declined to make promises, which is exactly what a minister does when the Treasury has not signed anything off.
3. Legislation or regulations
Repayment thresholds and interest rules are set in regulations. The 6% cap that starts on 1 September 2026 is real precisely because it went through that process and was announced by the department. Nothing equivalent exists for the interest margin beyond 2026/27.
Treat the interview as a strong indicator of direction and a weak indicator of timing. If you are making a decision about overpayments, a mortgage application or a career move, the only figures you can safely use are the ones in force today.
How Plan 2 Interest Actually Works
Powell described the rate as “RPI plus 3%”. That is the top of the range, not the rate everyone pays. Plan 2 interest slides with income, so the margin above RPI depends on what you earn.
One detail worth flagging: at the time of the BBC report, the RPI figure driving the loan was 3.2%, the March 2025 figure that applied from 1 September 2025 to 31 August 2026. Since 1 September 2026 the applicable figure is the March 2026 RPI of 4.1%, which applies until 31 August 2027, so use 4.1% if you are modelling anything today.
| Plan | Threshold 2026-27 | Interest basis |
|---|---|---|
| Plan 2 | £29,385 | 4.1% to 7.1% by income, capped at 6% since 1 Sep 2026 |
| Plan 5 | £25,000 | RPI only, 4.1%, no margin ever |
| Plan 1 | £26,900 | Not covered by the 6% cap |
| Plan 4 | £33,795 | Not covered by the 6% cap |
| Postgraduate (Plan 3) | £21,000 | 6%, and covered by the cap from 1 Sep 2026 |
Powell's second complaint, that borrowers are “never, ever paying off the capital”, is really a statement about the relationship between two numbers. If your annual interest charge is larger than your annual repayment, your balance grows even though money is leaving your payslip every month. That happens to a lot of middle earners on Plan 2 because the 9% repayment is calculated on income above the threshold while interest is charged on the whole balance.
Check your own position: the student loan interest calculator shows whether your repayments are outrunning your interest, and the student loan interest rates guide lists the current rate on every plan.
What Would Actually Change Your Repayments
It is worth separating what is already law from what is currently just a Cabinet minister's opinion. The first column below is safe to plan around. The second is not.
Settled policy
- Plan 2 threshold is £29,385 for 2026-27
- Repayment rate is 9% of income above the threshold
- Plan 2 and Plan 3 interest capped at 6% from 1 September 2026 for 2026/27, England and Wales only
- The cap does not apply to Plan 1, Plan 4 or Plan 5
- The 2027 to 2030 Plan 2 threshold freeze is still government policy
Speculation only
- Any cut to the RPI plus 3% margin beyond 2026/27
- Any reversal of the threshold freeze
- Any move from RPI to a different inflation index
- Whether reform would apply retrospectively or to new borrowers only
- Whether a formal review is ever launched at all
The one change you can bank on
On 7 April 2026 the government capped Plan 2 and Plan 3 interest at 6% from 1 September 2026 for the 2026/27 academic year, in place of RPI plus 3%. That applies in England and Wales and does not touch Plan 1, Plan 4 or Plan 5. For a Plan 2 borrower currently on the top rate it trims the maximum from 7.1% to 6% at the current 4.1% RPI, which is real and, now that RPI has risen, more valuable than the 0.2-point saving it offered when RPI was 3.2%, though it is still a one-year measure rather than a structural change to the margin.
The threshold is the bigger lever for most people, and it is going the other way. In the November 2025 Budget, then-Chancellor Rachel Reeves froze the Plan 2 repayment threshold at £29,385 from 2027 to 2030 rather than uprating it. Reeves later defended the package as “fair and proportionate” and about getting “the balance right between tax and spending”. Powell criticising the interest rate does not undo the freeze.
Model the freeze, not the speech: read the Plan 2 threshold freeze guide for the mechanics, then use the Plan 2 calculator to see what you actually pay on your salary under the rules as they stand.
The Wider Political Picture
Powell's comments land in a year when student loan interest has already become a cross-party argument rather than a technical one.
The Treasury Committee, 7 July 2026
MPs reported that comparing student loan repayments to phone contracts or cinema tickets “amounted to mis-selling”, and called for the threshold freeze to be reversed. That report is a recommendation and carries no legal force, but it came three weeks before Powell's interview and it moved the political weather.
The Conservative position
Conservative leader Kemi Badenoch has said she would cut Plan 2 interest, capping it at RPI only. That would put Plan 2 on the same interest basis as Plan 5, which already charges RPI with no margin. It means both main parties are now arguing about how much to cut the margin rather than whether the margin is defensible.
The Treasury constraint
The November 2025 freeze exists because it raises money. Any reform that lowers interest or lifts the threshold reduces the value of the loan book, and that shows up in the public finances. This is why Powell's inability to make promises matters more than her willingness to use strong language.
For a fuller map of who is proposing what, see our roundup of political party student loan policies, and the earlier Martin Lewis and Rachel Reeves clash over the threshold freeze.
What Campaigners Are Asking For
Campaign groups have been making versions of Powell's argument for years, and their asks give a sense of what a real reform package would need to contain.
Rethink Repayment
The campaign group describes the system as unfair, unsustainable and in urgent need of reform. Its focus is on the structural design rather than any single rate.
National Union of Students
Lewis Wilson of the NUS has said the administration should raise the repayment threshold and lower the repayment rate, with fundamental reform needed in the coming years. Note that both of those asks are about repayments rather than interest, which is a different lever from the one Powell singled out.
Three levers, three different effects
The threshold decides when you start repaying and how much of your salary escapes the 9%. Raising it helps low and middle earners most and shows up in your take-home pay immediately.
The repayment rate decides how fast you pay. Lowering it increases take-home pay now but leaves a larger balance for longer, which for many borrowers simply means more gets written off at the end.
The interest margin changes almost nothing month to month. It changes your balance, your write-off arithmetic and whether overpaying is ever worthwhile. That is why an interest cut is popular with people who expect to clear their loan, and close to irrelevant for people who never will.
What to Do Right Now
Nothing about your payslip changes because of an interview. Here is the sensible response.
Do not pre-spend a policy that does not exist
If you were planning around the current rules yesterday, plan around them today. Powell said she cannot make promises, and that is the operative sentence for anyone doing household budgeting.
Pause any overpayment decision that hinges on interest
Overpaying only makes sense if you are on track to clear the balance before write-off. If a future interest cut would flip that calculation for you, waiting a Budget cycle costs you very little. If you are nowhere near clearing the balance, an interest cut would not change the answer anyway.
Confirm which plan you are actually on
Almost everything in this story is Plan 2 specific. Plan 5 borrowers pay RPI only with no margin and are not affected by the interest debate at all, though they are affected by the £25,000 threshold and the 40-year write-off.
Watch the next fiscal event, not the next interview
Threshold and interest changes are announced at Budgets and implemented through regulations. That is where you will find out whether any of this is real.
Start here: check your plan and threshold in the repayment thresholds guide, then read Plan 2 explained for the write-off rules that decide whether overpaying is ever worth it.
Sources
- BBC News, Richard Wheeler, political reporter, on Lucy Powell and student loan interest, published 28 July 2026. bbc.co.uk
- Evening Standard, Rachael Burford, “Education Secretary Lucy Powell on action over student loan payments”, published 28 July 2026. standard.co.uk
- GOV.UK, “Interest rate cap introduced to protect Plan 2 borrowers”, 7 April 2026. gov.uk
- Treasury Committee news release, “Government has moral obligation to reverse freezing of student loans repayment threshold”, 7 July 2026. committees.parliament.uk
- HMRC, rates and thresholds for employers 2026 to 2027, for all threshold figures. gov.uk
Frequently Asked Questions
Is the student loan interest rate changing?▼
One change is already confirmed and one is not. Confirmed: from 1 September 2026, Plan 2 and Plan 3 interest is capped at 6% for the 2026/27 academic year in England and Wales, instead of RPI plus 3%. That was announced on 7 April 2026 and does not apply to Plan 1, Plan 4 or Plan 5. Not confirmed: any permanent cut to the RPI plus 3% margin. Lucy Powell has said the margin needs looking at, but no change has been announced. Until then, Plan 2 interest runs from 4.1% up to an uncapped maximum of 7.1% depending on income, held at the 6% cap.
What did Lucy Powell say about student loans?▼
Speaking to Matt Chorley on BBC Radio 5 Live, in remarks reported on 28 July 2026, the Education Secretary said the problem is “not just about the threshold of when people start to pay it back, but also the interest rate which is RPI plus 3%”. She said she had called that egregious in the past and was not going to change her opinion just because she is now the secretary of state. She described student loans as “very much at the top of my in-tray” and called repayments a real cost-of-living issue, saying borrowers are “paying high repayments and never, ever paying off the capital”. Asked whether she would look at it, she said: “Yes. I can't make any promises, but it needs looking at.”
Has the government launched a formal student loan review?▼
No formal review has been announced. Powell said the government “has committed to a review”, which is her characterisation of the government's position, not the launch of a process. There are no published terms of reference, no chair, no scope and no reporting date. Some aggregator outlets headlined her remarks as the Education Secretary launching a student loan review, and that is not supported by the BBC or Evening Standard reporting. She also said explicitly that she cannot make any promises.
Will the Plan 2 threshold freeze be reversed?▼
There is no commitment to reverse it. The freeze holds the Plan 2 threshold at £29,385 from 2027 to 2030 and was announced by then-Chancellor Rachel Reeves in the November 2025 Budget. The Treasury Committee called for it to be reversed on 7 July 2026, and Powell named the threshold as one of two problems with the system, but neither of those is a policy change. Reeves defended the measures as “fair and proportionate” and about getting “the balance right between tax and spending”. Any reversal would have to come at a Budget.
What does RPI plus 3% mean and who actually pays it?▼
RPI plus 3% is the top of the Plan 2 interest range, not the rate everyone pays. The RPI basis is currently 4.1%, the March 2026 figure that applies from 1 September 2026 to 31 August 2027, so the uncapped Plan 2 range would run from 4.1% up to 7.1%. Where you sit in that range depends on your income, with the full 3% margin applying to the highest earners. Since 1 September 2026 the maximum is capped at 6% for the 2026/27 academic year. Plan 5 borrowers never pay a margin at all: their rate is RPI only, currently 4.1%.
Should I wait for reform before overpaying my student loan?▼
The overpayment question turns on whether you are on track to clear your balance before it is written off, not on what a minister has said in an interview. If you will never clear it, overpaying is money you will not get back and an interest cut would not change that. If you are close to clearing it, interest matters a great deal, and in that narrow case waiting one Budget cycle before making a large voluntary payment costs you little. Run your own figures in the interest calculator rather than acting on a headline, and remember that no reform has been announced.
Related Resources
Student Loan Interest Rates
Current rates on every plan and how the 6% cap works from September 2026
Plan 2 Threshold Freeze Guide
The 2027 to 2030 freeze and what it costs you in real terms
Plan 2 Explained
Thresholds, interest bands and write-off rules for Plan 2 borrowers
Interest Calculator
See whether your repayments are outrunning the interest on your balance
Treasury Committee Report
The 7 July findings on mis-selling and the call to reverse the freeze
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.