In 2025, the Student Loans Company reported that graduates in England leave university with an average debt of £53,000, repayable with interest. Understandably, many regard this as unjust when less than three decades ago, students’ university tuition and maintenance fees were state-funded. Widespread discontent expressed by Plan 2 borrowers who studied between September 2012 and July 2023 has led to a new inquiry being launched into student loans in England. Against this background, this post explores whether the Westminster Government’s decision to apply a variable interest rate to Plan 2 borrowers could be indirectly discriminatory on the basis of age. 

The various repayment plans

The terms of each plan are set out in the Education (Student Loans) (Repayment) Regulations 2009 (‘the 2009 regulations’). Plan 1 applies to borrowers who studied an undergraduate course in England and Wales between August 1998 and 2012, as well as all borrowers in Northern Ireland. Plan 4 applies to all borrowers in Scotland. Plan 5 applies to borrowers studying an undergraduate course from August 2023 onwards. Interest on Plans 1, 4 and 5 is currently charged at the Retail Price Index (‘RPI’) (currently 3.2%), which arguably makes their loans interest-free in real terms. (For Plans 1 and 4, if at any point the bank base rate plus 1% is lower than RPI, interest on those loans will instead be charged at that rate.) In contrast, regulation 21A(2)(a) of the 2009 regulations stipulates that Plan 2 loans are charged at “the standard interest rate [(i.e., RPI)] plus 3%”. In practice, Plan 2 borrowers’ interest accrues on their loan at RPI + 3% throughout the duration of their course. Once they graduate or leave the course, the interest rate becomes subject to a lower and higher interest rate threshold (£29,395 and £52,885 respectively). Where a Plan 2 borrower’s income in any given tax year is below the lower threshold, interest on their repayments accrues at RPI. Plan 2 borrowers whose incomes exceed the lower threshold in a given tax year are charged interest on a sliding scale which rises to a maximum additional rate of RPI + 3% for those earning above the upper threshold.

Could the decision to maintain a variable ‘real’ interest rate for Plan 2 borrowers be discriminatory?

Individuals of any age who applied for student finance during the lifespan of Plan 2 loans would be subject to the variable interest rate. However, as most undergraduates start their first year at or around 18 years old, it is arguable that those who turned 18 during the lifespan of Plan 2 (currently 22 – 32 years old) are placed at a particular disadvantage by the variable interest rate. 

Indirect discrimination under the Equality Act and European Convention on Human Rights 

Sections 19 and 29 of the Equality Act 2010 (‘the Equality Act’) prohibit indirect discrimination in the provision of services to the public. It is subject to section 20A of Schedule 3 of the Equality Act which provides an exemption for age discrimination for anything done “in connection with the provision of a financial service”. While the author notes that this exemption is extremely broad and raises interesting public law considerations, a detailed examination of these issues exceeds the scope of this post and is therefore not addressed here.

Article 14 of the European Convention on Human Rights (‘the ECHR’) prohibits discrimination in the provision of other ECHR rights on a number of grounds, including age and arguably financial status. Assuming compulsory student loans repayments fall within the scope of Article 1 Protocol 1 (‘A1P1’) (the right to peaceful enjoyment of one’s possessions), one could argue that the variable interest rate violates Plan 2 borrowers’ Article A1P1 rights under the ECHR in conjunction with Article 14. 

If the variable interest rate was deemed to be indirectly discriminatory, it would be for the government to prove that this was justified. 

Justification

Indirect discrimination is generally justified if it is a proportionate means of achieving a legitimate aim. The four-stage test below, articulated by Lady Hale in R (on the application of Tigere) [2015] UKSC 57 (‘Tigere’) sets out the relevant considerations for identifying whether a measure is likely to be justified:  

i) does the measure have a legitimate aim sufficient to justify the limitation of a fundamental right; 

ii) is the measure rationally connected to that aim; 

iii) could a less intrusive measure have been used; and 

iv) bearing in mind the severity of the consequences, the importance of the aim and the extent to which the measure will contribute to that aim, has a fair balance been struck between the rights of the individual and the interests of the community?

This test is considered in further detail below in the context of the variable interest rate. 

(1) Does the variable interest rate have a legitimate aim sufficient to justify the limitation of a fundamental right? 

Section 22 of the Teaching and Higher Education Act 1998 directs that regulations shall be made authorising the Secretary of State for Education to make grants and loans available to eligible students in connection with their higher education. Section 22(3)(a) states that the loans may bear compound interest “at such rates, and calculated in such manner, as may be prescribed from time to time”, paving the way for the interest rates to be varied during the repayment period. Section 22(4) states that:

“(a) the rates prescribed by regulations made in pursuance of subsection (3)(a) must be—

(i)  lower than those prevailing on the market, or

(ii)  no higher than those prevailing on the market, where the other terms on which such loans are provided are more favourable to borrowers than those prevailing on the market.”

Parliament has plainly bestowed a broad discretion on the Secretary of State to decide whether to charge interest on student loans, and if so, the rate of interest charged, as long as those rates do not exceed the prevailing market rate. 

The Explanatory Memorandum to the Education (Student Loans) (Repayment) (Amendment) (No. 2) Regulations 2012 and its Equality Impact Assessment reflect that (emphasis added) “the overall package of reforms [aims] to make the system more progressive and protect those that do not go on to enjoy high earnings – whilst asking those that do to contribute more.” A White Paper on Higher Education published in June 2011 concludes “[o]ur challenge has been to reduce public spending on higher education without reducing the capacity of the system and, at the same time, to provide more assistance for students from disadvantaged backgrounds. We believe our new funding model meets this challenge.”

Therefore the ostensible objective(s) of the reforms, including the variable interest rate, appear to be:

(1) Protecting the country’s economic wellbeing through reducing public spending on higher education; and

(2) Creating a more progressive system by protecting lower earners from high real interest rates and providing more assistance to students from disadvantaged backgrounds, while requiring higher earners to contribute more.

These objectives are plainly important and may justify the limitation of some rights in certain circumstances. That being recognised, the focus of this post shifts to whether the use of the variable interest rate is rationally connected to these objectives and a proportionate means of achieving them.

(2) Is the variable interest rate rationally connected to the aims?

It is not clear that there is a rational connection between the variable interest rate and the realisation of the objectives articulated above. These are considered in turn: 

I. Protecting the country’s economic wellbeing 

Although it may seem counterintuitive at first blush, it is unclear that reducing public spending on higher education will protect the country’s economic wellbeing, or that reducing taxpayer contributions towards higher education any further would be ‘progressive’. The higher education system produces social and economic benefits for all taxpayers. The sector contributes billions to the UKeconomy. It is estimated that for every £1 of public money invested in higher education, £14 is put back into the economy. On average, each UK graduate generates an extra £75,000 for the Exchequer. The UK as a whole benefits from higher education and it has proven itself to be an investment worth making. Continually reducing the public funding of higher education may therefore be adverse to the UK’s interests.

II. Creating a more ‘progressive’ system

The variable interest rate does not appear to contribute to a system that is more ‘progressive’ in practice, either through protecting lower earners from high real interest rates or providing additional support to students from disadvantaged backgrounds. The application of the RPI + 3% interest rate to all Plan 2 borrowers during their studies results in all borrowers, irrespective of their social or financial status, accruing a significant amount of interest before they even graduate. 

Furthermore, while it does appear to garner increased contributions from some higher earners (i.e., those earning over the higher repayment threshold) it arguably does so in a non-progressive way. Currently, those with the most capital pay their fees upfront and contribute the least (equitably speaking) to the higher education system. The highest burden is then placed on those who were unable to pay high tuition fees upfront but subsequently become higher earners. These individuals are likely to be from less affluent backgrounds. As a result, this approach undermines social mobility as it places a higher contribution burden on those who have overcome social barriers to earn a higher income than on higher earners who did not. Higher earners who attended university but did not require a loan are effectively exempt from this ‘progressive’ measure which undermines the government’s efforts to acquire increased contributions from all higher earner graduates. The Independent Panel Report to the Review of Post-18 Education and Funding (May 2019) (‘the Augar Review’) reflects that there has been no improvement in social mobility in Britain over half a century (see page 23). The variable interest rate may be contributing to this lack of progress. It also brings into question the compliance of the measure with the Public Sector Equality Duty under section 149 of the Equality Act.

While it may not do so in the most ‘progressive’ way or in a way that clearly protects the country’s economic wellbeing, the variable interest rate does increase contributions from some higher earners and protect lower earners from high interest rates once they have graduated. There is therefore, arguably, some rational connection between the measure and its objectives.

(3) Could a less intrusive measure have been used?

The aim of increasing contributions from higher earners and reducing public spending is already achieved through the income-contingent tax and student loan repayment systems in place (discussed further below). A maximum repayment cap on loan repayments (as recommended by the Augar Review) could also ensure that a reasonable limit was placed on the amount repayable. 

(4) bearing in mind the severity of the consequences, the importance of the aim and the extent to which the measure will contribute to that aim, has a fair balance been struck between the rights of the individual and the interests of the community?

The balance struck by the Plan 2 repayment system appears to underestimate the extent to which borrowers contribute to higher education in various capacities. Higher education contributions are arguably recovered from Plan 2 borrowers who earn over the repayment threshold, through the following avenues:

(a) Through their tax contributions, which feed into the higher education system and cover unpaid debt.

(b) Through their loan repayments with interest. 

(c) Through their inflated tuition fee of £9,000 per year. The Augar Review reflects that the average cost of delivering humanities and social science degrees was approximately £7,500 and recommended that the maximum tuition fee be reduced to this amount. When the maximum rate of tuition fees was initially increased to £9,000 under the Higher Education (Higher Amount) (England) Regulations 2010 it was not intended that most universities would charge this amount. One could argue that the additional £1,500 represents a surplus contribution to the funding of higher education. 

Higher earner borrowers under Plan 2 additionally contribute to higher education funding through (1) the progressive income tax system at a higher-rate (of 40% on income above £50,271) and/or an additional-rate (of 45% on income above £125,140), and (2) income-contingent loan repayments, calculated at 9% of their higher earnings (on anything above £29,385). As such, even without the variable interest rate, higher earner borrowers are making significant contributions to higher education. This does not appear to have been reckoned with during the consultation or impact assessment period.

The variable interest rate further increases contributions from Plan 2 borrowers across the board, and in particular, higher earners, who are reportedly paying significant amounts over the value of their original loan, arguably at commercial interest rates. Some higher-earning borrowers have suggested that they are on target to pay between £100,000 – £150,000 in respect of a £60,000 or £70,000 initial loan. This brings into question the compatibility of the current variable interest rate with section 22(4) of the THEA (cited above). Although no statutory definition is provided for the prevailing market rate (‘PMR’), the Department of Education has suggested that the most appropriate practical measure of the prevailing market rate is the Bank of England’s effective interest rates for existing and new unsecured personal loans (which was around 8.78% in December 2025). Irrespective, 6.2% matches or is above the rate of many commercial loans. Higher earners who are repaying significant quantities above the amount initially borrowed andcontributing to higher education through the other abovementioned avenues, may struggle to see how their loan repayment terms are “no higher than those prevailing on the market”. Unlike ordinary loans, student loans are exempt from scrutiny under the Consumer Credit Act 1974 and the Financial Markets and Services Act 2000 under section 8 of the Sale of Student Loans Act 2008. A reason provided for this was that “their characteristics differ substantially from commercial loans.” The impact of the variable interest rate on Plan 2 higher earners brings into question the reasonableness of the continued application of this exemption. 

The immoderate contributions required from Plan 2 higher earners in particular appear to be disproportionate when weighed against the limited evidence that the variable interest rate is contributing to the country’s economic wellbeing or a more ‘progressive’ system. The decision to remove the variable interest rate for Plan 5 borrowers further points to its lack of proportionality. The Explanatory Memorandum for the regulations which removed the variable interest rate for Plan 5 borrowers stated that “the changes to student loans implemented by this instrument will help […] mak[e] it fairer for taxpayers and students.” This undermines the suggestion that the variable interest rate was ever progressive and implies that it is unfair. Further, as the variable interest rate does not apply to borrowers on other repayment plans or to higher-earning graduates who studied during the Plan 2 period without taking out loans, its impact is disproportionately, and arguably unreasonably, concentrated on a relatively narrow cohort of borrowers.

These considerations are subject to the wide margin afforded to the executive and legislature in relation to general measures of economic or social strategy, unless such measures are “manifestly without reasonable foundation” (see, for example, R (SC) [2021] UKSC 26). That respect is heightened where there is evidence the decision maker has addressed their mind to the particular issue before the court (see Tigere paragraph 32). However, the decision-maker does not appear to have done so in this case. The Equality Impact Assessment on the Education (Student Loans) (Repayment) (Amendment) (No.2) Regulations 2012 reflects: “[w]e do not believe there will be significant impacts for others in the protected or disadvantaged groups (for example in relation to age, or men, or non-disabled, or the White group).” The wide margin is also qualified to some extent in cases concerning education, which enjoy direct protection under the ECHR (see Tigere paragraphs 27 – 32). However, it is not clear whether and, if so, to what extent that qualification would apply in this case, given that Plan 2 borrowers have already graduated.

Considering the limited evidence that the variable interest rate is contributing to the objectives considered above, and the significant disproportionate impact it is having on a narrow cohort of borrowers, it does not appear that a fair balance has been struck between the rights of the individual and the rights of the community. While ultimately, the lawfulness or otherwise of the variable interest rate is a question only the courts can determine, in light of all of the considerations above, it is difficult to see how it is a proportionate and rational means of achieving the purported objectives considered in this article.

Concluding thoughts 

It is anticipated that the variable interest rate will be among the issues considered in the new inquiry on student loans. The Chair of the Treasury Committee, Dame Meg Hillier, has observed “[t]his inquiry is about fairness. Fundamentally, what we’re asking is, have the goalposts been moved in a way which is unfair to graduates?” Whether this scrutiny will prompt further reform is yet to be seen. In the meantime, pressure continues to mount for a higher education system that is affordable, accessible and fair for all.

Disclaimer: Nothing in this article constitutes legal advice. 

Chloe Reddock is a public law barrister at Kings Chambers. 

She would like to thank Dr Trueblood and Professor Wheatle for their support and contributions to this post.

(Suggested citation: C. Reddock, ‘A Plan 2 far?’, U.K. Const. L. Blog (2nd April 2026) (available at https://ukconstitutionallaw.org/))