The Treasury Select Committee's damning verdict on student loan mis-selling has sparked calls for ministers to reverse their decision to freeze Plan 2 repayment thresholds. MPs accuse the government of a 'moral obligation' to honour existing terms and conditions, which were not properly disclosed to young borrowers.
The cross-party committee's report highlights several instances where promotional materials failed to adequately inform students about the government's ability to retrospectively alter loan terms and conditions. YouTube videos and slideshows were criticised for implying that monthly repayments were comparable to mobile phone contracts, a comparison deemed inaccurate for higher earners. The Student Loan Company was also found to have not made it sufficiently clear during the application process that terms could be changed.
The controversy centres on Plan 2 student loans taken out by students in England and Wales who commenced university between September 2012 and July 2023, and those in Wales starting between September 2012 and the present day. When these loans were introduced in 2010, the then-government indicated that the repayment threshold of £21,000 would be annually uprated in line with earnings from 2016. However, this threshold was subsequently frozen from 2016 to 2018 and again from 2021 to 2025.
Last year's decision by Chancellor Rachel Reeves to freeze the Plan 2 repayment threshold at £29,385 for three years has been met with criticism. The move means that graduates earning above this figure will continue to repay 9% of anything they earn over the threshold, with pay increases not being protected from rising living costs. MPs have accused successive governments of 'loading burdens on to younger generations', hoping they won't notice until future years.
A survey conducted by the committee revealed that more than half of respondents did not fully understand the terms and conditions before taking out their loan. One respondent described repayments as 'a tax on ambition'. Despite a 6% cap on loan interest rates announced in April, the government has so far resisted calls to unfreeze the repayment threshold. Meg Hillier MP, Chair of the Treasury Committee, urged ministers to take action, stating that reversing the freeze would be a 'modest change' that could repair trust.