Lib Dems plan to cut graduate debt for public sector workers

Doctors, nurses and teachers would have a proportion of their student loans written off if they continue to work in the NHS or state schools, under Liberal Democrat plans to overhaul university finance.

Graduates working in essential public sector roles would have 20% of their debt scrapped after 10 years. The programme could eventually be extended to the police and armed forces as part of a drive to improve public service recruitment and retention.

The initial scheme, modelled on a similar system in Australia, would cost about £300m a year, according to the Lib Dems’ policy paper.

The party will set out its plans to shake up student loans more than a decade after former leader Nick Clegg was forced to apologise for breaking a 2010 manifesto pledge not to raise tuition fees as part of the coalition government. The issue became toxic for the Lib Dems and led to their collapse in the polls and evisceration at the 2015 general election.

Under the Lib Dems’ new proposals, the planned repayment threshold freeze, announced by Rachel Reeves at the last budget, would be scrapped. Thresholds would also increase in line with average earnings rather than the discredited retail prices index (RPI) measure of inflation.

The Lib Dems say a typical British graduate earning £35,000 would see their loan repayments cut by half within three years, putting an extra £280 a year back in their pocket. The reforms would give graduates an immediate boost of nearly £100 in the coming year, while the lowest-earning graduates could save up to £5,000 over the lifetime of their loan, the party claims.

Ian Sollom, the Lib Dems’ universities and skills spokesman, said: “My party paid a heavy price for making promises on tuition fees that we couldn’t keep. We've learned from that.”

But he insisted the system needed “fundamental reform” that endures beyond a single parliament. “We’re calling for a royal  commission to build a cross-party consensus and a fairer system for graduates in the long term.”

The government is under growing pressure to do more to tackle soaring graduate debt. Anger has been rising on the Labour benches in the House of Commons, particularly among younger MPs who are themselves weighed down by student loans.

Lucy Powell, Labour’s deputy leader, has criticised the “unfair” interest rates charged on student loans.

Those on plan 2 loans, who began an undergraduate course between September 2012 and July 2023, repay 9% of their income above £28,470, with interest charged at RPI plus 3%.

Last month, the personal finance expert Martin Lewis urged the chancellor to rethink her decision to freeze the threshold at which plan 2 student loans start to be paid back at £29,385 for three years, starting in April 2027. He said it was “not a moral thing” to make such a retrospective change.

Photograph by Gareth Fuller/PA Wire