MPs have told the government it has a ‘moral obligation’ to reverse the threshold freeze to honour the terms under which the loans were sold to students. Photograph: Stanislav Halcin/Alamy View image in fullscreen MPs have told the government it has a ‘moral obligation’ to reverse the threshold freeze to honour the terms under which the loans were sold to students. Photograph: Stanislav Halcin/Alamy Student finance UK government to offer clearer guidance on student loans after repayment row Criticism of three-year threshold repayment freeze prompts update to guidance warning terms and conditions could change
Prefer the Guardian on Google University students taking out student loans are to be warned that the terms and conditions could change so they are better informed about what they are signing up to, the government has said.
In July, a report by MPs said slideshows that compared student loan repayments to the cost of a mobile phone contract, and YouTube videos that did not mention the fact that conditions could be altered amounted to mis-selling by the government .
The Treasury committee’s investigation followed a furore last November when the then chancellor, Rachel Reeves, announced that the repayment threshold on plan 2 loans in England would be frozen at £29,385 for three years from April 2027. The threshold is currently £28,470 for this plan.
Some students had been led to believe that the thresholds would rise in line with inflation each year.
The committee’s report said the government had a “moral obligation” to reverse the freeze to maintain students’ trust and honour the terms under which the loans were sold to them.
In its response, published on Sunday, the government acknowledged the difficulties faced by graduates repaying loans, and said it kept “all aspects of the student finance system under review”, but did not commit to any change in policy.
It said it would redesign the guidance for new students to make it clear and unambiguous.
However it rejected the committee’s recommendation to issue new loans on a contractual basis so that terms could not be changed at a later date, saying it needed to be able to adapt the system to changing economic circumstances in order to keep taxpayers’ contributions stable.
In August, 121 MPs and peers from across party lines signed a letter to the new chancellor, John Healey, calling on him to urgently review the repayment system.
The letter said the frozen thresholds combined with inflation-linked interest rates meant young teachers, nurses, engineers, and entrepreneurs were facing “historically high” effective marginal tax rates.
“For many middle-income graduates, the combination of income tax, national insurance, and student loan repayments means they see less than half of any hard-earned pay rise,” it said.
Responding to the government’s commitment to offer clearer guidance, the chair of the Treasury committee, Meg Hillier, said: “The commitment to right a historical wrong by updating the information so that prospective students are properly informed before taking out a massive loan is an important step forward.
“Unfortunately, though, it doesn’t help graduates who are angry that they didn’t receive the same service and are now facing punitive repayment terms on a loan which keeps growing.”
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Hillier welcomed the fact that a reversal of the thresh…