Student loans have become a tax on poor people

Martin Lewis has accused the Labour Party of turning student loans into a tax on young people.

At the Autumn budget, Labour froze the student loan repayment thresholds for Plan 2 loans at £29,385 from April 2026.

Lewis pointed out that this was either a targeted tax rise on young people, or a:

retrospective rewriting of the terms of a private contract.

Student loans are being turned into a tax

Either way, Rachel Reeves claimed the freeze was “fair and reasonable” – which is, of course, bullshit.

Mainly because rich kids who had the bank of mummy and daddy to pay their tuition fees up front are now exempt from this additional tax.

There are five student loan plans in operation. These cover most postgraduate courses, Scotland and three mainly English student cohorts. Namely, entrants pre-2012, those between 2012 and 2023, and those post-2023.

The current student loan controversy refers to plan 2 loans. Around 6m people took these out in England and Wales between 2012 and 2023.

According to the Guardian:

For a plan 2 graduate, every pound earned between £30,000 and £50,000 already faces 20% income tax, 8% national insurance and 9% loan repayment – a 37% marginal rate. Freezing the plan 2 threshold, as Ms Reeves proposes from 2027, penalises these graduates by holding down the point at which repayments begin (roughly £30,000), so that as wages rise, a growing share of their income faces the 9% charge. This ensures more income is taxed at 37% for longer as incomes go up.

According to the Institute for Fiscal Studies, this is equivalent to a tax rise.

£53k of debt per student

Graduates now have an average debt of £53,000. For some doctors, that figure is over £100,000. Which is messed up, considering Rachel Reeves said that the Government will use the repayment freeze to fund the NHS and keep prescription charges under £10.

As the Guardian points out:

If someone earns £60,000, they should be taxed because they earn £60,000 – not because they went to university in 2014 rather than 2009.

Campaign platforms, Organise and Rethink Repayment, previously accused the Government of acting “like a loan shark”.

Roxy Khan-William, head of campaigns at Organise, told LBC:

The evidence increasingly points to the hallmarks of mis-selling: complex terms, optimistic assurances, underplayed risks, and later rule changes that materially worsen outcomes.

In effect, the Government is acting like a loan shark.

Most banks would not approve a £50k high-interest loan for the average 18-year-old. Yet that is exactly how the Government is treating the student loans system.

Except there is no contract, no fixed terms, and no interest rate, and most graduates never recall seeing the terms and conditions.

Shitting on young people

On my previous point about Rachel Reeves talking shit – when she finished her undergraduate degree in 2000, the average student loan debt was £3,000.

The government only announced tuition fee rises in 2004. So when Reeves finished her postgraduate degree that year, they were still capped at £1,125 per year.

Both of her loans were Plan 1. This means the interest rate is linked to inflation, so there is no real cost to borrowing.

Reeves benefited from low tuition fees and not having tens of thousands of pounds in debt when she left university. Yet now she wants to take a shit on young people?

Another rule for the rich

Wealthy families can essentially buy their kids out of this ridiculous tax. From the vast connections that come with money, to private school, not having to work through education, to the mental health benefits of growing up in financial stability, it’s fair to say that kids born into rich families already have enough of a leg up.

And whilst there’s no doubt that many rich kids turn out to be massive pricks, why should they be exempt from taxes?

Reeves may as well start handing out step ladders at graduation.

How many other ways does Labour want to say “we hate poor people”? Gone are the days when Labour was the party of the working class. 

And let’s face it, yes, they hate poor people – but the only reason anyone is poor in the first place is because of the incompetence of consecutive governments.

Featured image via the Canary