The newly installed Chancellor of the University of Cambridge, Lord Chris Smith, has said that ministers must completely restructure the “badly broken” system of tuition fee loans in England in an interview with The Financial Times (FT).

His criticism is targeted specifically towards contentious plan 2 loans, which affect borrowers who went to university between 2012 and 2022. He also called for a greater emphasis on vocational education over degrees.

The former Labour cabinet minister said: “We’re in an absurd position where quite often a graduate in an average-paying job is paying a huge whack of their income in repaying their loan each month and not making any real dent […] This can’t be right.”

Regarding plan 2 loans, he added: “The rate of interest is too high, the threshold beyond which [graduates] start repaying is too low, and the chancellor didn’t help by freezing it for [the] next three years [in the 2025 Budget].”

Under the plan 2 system, graduates start repaying their loan once they earn more than £28,470 a year. The interest on their loan is calculated on a sliding scale, rising to the RPI rate of inflation plus 3 percentage points for those earning more than £51,245.

Plan 2 graduates owe an average of £43,033. This is only marginally less than the average of £47,550 owed by students on the plan who are not yet eligible to repay, due to not earning above the salary threshold.

The FT’s interview with Lord Smith came on the same day (16/03) as he was officially installed as chancellor at a ceremony in the Senate-House, following his election in July.

It also comes amid growing pressure on the government to reform the student loan system and reduce repayment burdens for borrowers. Last week, MPs launched an inquiry seeking graduate opinions on the suitability of the university financing system, and in February, Oxford’s chancellor Lord William Hague called for a “national conversation” about rising graduate debt and the job market.

Smith said that an answer to this problem could be to “ensure vocational education becomes much more respected and has a higher status than at the moment”. Having served as culture secretary in Sir Tony Blair’s government, he said that the administration’s target of having 50% of school leavers attending university may have incentivised too many students to prioritise higher education over vocational training.

Last year, Prime Minister Sir Keir Starmer replaced the university attendance target with an objective of at least two-thirds of people enrolling in university, a technical degree, or an apprenticeship by the age of 25.

Smith said that 50% was a “fairly arbitrary figure plucked out of the air,” and that “there will be many people who ended up aspiring to go to university for whom […] an academic education was perhaps not the very best way of taking their education forward”.

Smith also expressed criticism of the Home Office for restricting international students from bringing dependents with them to the UK. The government has defended this on the grounds of addressing abuses in the system, but Smith said this acted as a “huge disincentive to them coming,” adding: ’I don’t think they [the Home Office] recognise what [benefits] can come for UK plc from [overseas student] engagement.”

As part of a new initiative launching this year, Smith committed to raising “significantly more” than the £2 billion in the University’s last campaign to strengthen Cambridge’s finances and support the provision of a full university experience.

He also called for greater commercialisation of university-generated ideas through the development of a new innovation hub and related investment.

He said: “We need to keep on reminding the UK government that universities, especially ones like Cambridge and Oxford, are centres of genuine excellence and can be catalysts for innovation, growth and discovery of new processes and products.”

As the 109th chancellor, Smith said that, in his decade-long term, he wants to “make sure the University is as committed to freedom of speech and academic freedom as it is now,” while ensuring the continued vitality of arts and humanities disciplines alongside the sciences.

Given the Trump administration’s “rather alarming” policies on universities, Smith said that the University stands to benefit from students across the globe opting for the UK over the US.

He told The FT: “If Cambridge is the beneficiary in getting some really bright students coming from elsewhere, so much the better.”