Cutting the student loan repayment rate from nine per cent to five per cent could inject up to £6bn into the domestic economy each year, according to analysis by consultancy firm Baringa. The firm argues that current student loan repayments are limiting consumer spending among graduates.
Graduates with Plan 2 loans currently repay nine per cent of their income above £29,385 per year. Postgraduates with Plan 3 loans face an additional six per cent repayment upon earning £21,000 annually.
Baringa's consultants suggest that these repayment thresholds have led young workers to avoid sectors such as hospitality, car purchases, and home improvements. They estimate that a reduction in repayment levels could lead to an additional £676m in annual spending for restaurants, cafes, and hotels, and £1bn for the automotive industry.
Paddy Winters, a partner in consumer products and retail at Baringa, stated that student loans are a "drag on consumer spending at a life stage typically associated with rising economic activity." He added that it is "striking to see how much consumer demand is effectively being held back by student loan repayments."
Education Secretary Lucy Powell has indicated that reforming the loan system is a priority. For the 2026/27 tax year, the repayment threshold for those entering a Plan 5 loan has been lowered to £25,000.