Rachel Reeves has vowed to reduce student loan repayments by tackling inflation, following widespread concern over escalating costs. Demonstrators gathered outside Parliament on Wednesday portrayed the under-fire Chancellor as a loan shark in reaction to modifications that will result in increased loan costs for some students.

Speaking to broadcasters, the Chancellor said: “The changes I made in the budget froze the threshold at which Plan 2 student loans are paid back and we’ve frozen that for a couple of years. That has been done in the past, but we are also bringing down inflation and, of course, the interest that people are paying on student loans is linked to inflation.

“Inflation peaked at more than 11% under the previous government that did push up the cost of those student loans. But by getting inflation down, we can also reduce the interest on student loans and I think that will make a big difference in making that more affordable.”

The Chancellor revealed in November’s budget that the salary threshold determining when graduates on Plan 2 loans must commence repayment will remain frozen at £29,385 for three years, meaning many will face higher payments. Interest is applied to Plan 2 loans at the Retail Prices Index inflation rate plus up to 3% based on a graduate’s earnings.

Ms Reeves later maintained the system was “fair” and “reasonable” following criticism of the move. Asked by a caller during a phone-in on LBC whether she agreed with the Chancellor’s assessment, Ms Powell described student loans as “a kind of graduate tax”, adding that many struggle to make progress on paying off the debt.

“I think, to be fair, what Rachel was probably talking about was more in the generality, which is: is it fair that graduates make a contribution towards their education? Because obviously, as graduates in general, we do earn a lot more money over our lifetime.

“And I think the general principle is fair, but I do accept absolutely that there are issues around this plan too, and the plus 3%, that particularly is particularly egregious, in my humble opinion.”

NUS president Amira Campbell said the Chancellor should look for solutions to a system in “dire need of overhaul”, such as capping interest.

“The current student loan system is freezing our future,” she said. “How can graduates be trying to build our professional lives all while the Chancellor is acting like a loan shark, taking hundreds a month off our pay cheques while the interest grows even faster? Is this the reward we get for following their advice and investing in our future?”