One of the principal architects behind the UK's student loan system has publicly called for a reduction in interest rates for graduates, while candidly admitting that the policy was formulated in a "mad rush" during a period of intense political pressure. Nick Hillman, who served as a special advisor to former universities minister Lord Willetts, made these revelations in an interview with The Times, sparking renewed debate over the fairness and sustainability of the current loan framework.
Origins of the Student Loan System
Mr. Hillman was instrumental in designing the "Plan 2 Loans," which applied to graduates who commenced their university studies between 2012 and 2023. This system was introduced alongside a controversial tripling of tuition fees, a move that has since drawn widespread criticism from students and advocacy groups alike. Reflecting on the policy's creation in 2010, Hillman described a chaotic environment where the government was scrambling to identify areas for budgetary cuts.
"We'd had a general election where every single major political party had promised to exempt some areas of public spending," he explained. "They'd said 'we're not going to cut pensions and we're not going to cut defence and we're not going to cut science', so the bits of government that were not protected, and that included higher education… had to take swingeing cuts." This admission underscores the rushed nature of the policy's development, which has had long-lasting implications for millions of graduates.
Proposed Changes to Interest Rates
Under the current Plan 2 Loans, graduates are charged interest at the Retail Price Index (RPI) plus up to 3 per cent. However, Hillman now argues that it "makes sense" to switch the benchmark from RPI to the Consumer Price Index (CPI). This recommendation is based on the fact that RPI is typically higher than CPI and has been deemed "no longer fit for purpose" by the Office for National Statistics since 2013.
"Since we designed the system, the Office for National Statistics has said RPI should not be used for any government policies. It's a very bad measure of inflation," Hillman stated during an appearance on Times Radio. CPI is currently the UK's official inflation measure, used for taxes and benefits, making it a more appropriate and potentially less burdensome index for student loan calculations.
Recent Government Actions and Public Response
The call for reform comes amid ongoing discussions between Number 10, the Treasury, and the Department for Education regarding potential changes to the student loan system. In November 2025, Chancellor Rachel Reeves announced in her budget that the repayment threshold for Plan 2 loans would be frozen at £29,385 for three years starting from April 2027, rather than increasing with inflation annually.
This freeze means that more graduates will begin repaying loans earlier, as inflation-driven salary increases push them over the threshold sooner than anticipated. Graduates are required to repay nine per cent of their income above this threshold, leading to concerns about financial strain. Last week, a group of graduates dressed as sharks protested outside Parliament, accusing the government of acting like "loan sharks" due to the perceived harshness of the system.
Despite the criticism, Ms. Reeves has defended the current framework, describing it in January as "fair and reasonable." The Department for Education has been approached for further comment but has yet to issue a detailed response to Hillman's proposals.
Implications for the Future
Hillman's revelations and recommendations highlight the need for a thorough review of the student loan system. The shift from RPI to CPI could significantly reduce the interest burden on graduates, making repayments more manageable and aligning the policy with modern economic standards. As debates over higher education funding and graduate debt continue to intensify, these insights from a key policy architect may influence future reforms and spark broader discussions about equity and transparency in public policy-making.
