Students protest last year against the chancellor’s decision to freeze the repayment threshold on plan 2 for three years from April 2027. Photograph: Sean Smith/The Guardian View image in fullscreen Students protest last year against the chancellor’s decision to freeze the repayment threshold on plan 2 for three years from April 2027. Photograph: Sean Smith/The Guardian Student finance Student loan promotion in England and Wales amounted to mis-selling, MPs say Treasury select committee also says ministers have moral obligation to reverse last year’s repayment threshold freeze
Prefer the Guardian on Google Slideshows that compared student loan repayments with the cost of a mobile phone contract, and YouTube videos that did not mention the fact that loan terms could change amounted to mis-selling by the government, MPs have said.
The chancellor, Rachel Reeves, caused a furore last year when she announced that the repayment threshold on plan 2 student loans would be frozen at £29,385 for three years from April 2027.
Above this salary level, graduates will have to repay 9% of anything they earn, and the freeze means any pay increase they receive is not protected from the rising cost of living.
In a report published on Tuesday, the Treasury select committee said ministers had a moral obligation to reverse the decision and honour the terms under which the finance was sold to young people.
It said successive governments had “taken the politically convenient option of loading burdens on to younger generations, hoping that they will not notice until future years”.
Students from England who started university between September 2012 and July 2023, and students from Wales who started between September 2012 and the present day took out plan 2 loans.
When they were first announced in 2010, the government of the time said the £21,000 earnings threshold would be uprated annually in line with earnings from 2016. It was then frozen from 2016 to 2018 and again from 2021 to 2025.
The committee highlighted three instances it said amounted to mis-selling to students.
These were YouTube videos and slides that did not disclose that the government could vary the terms and conditions of loans retrospectively and promotional material suggesting the monthly cost of repayments was comparable with that of a mobile phone contract, which was inaccurate for higher earners.
The third claim was that the Student Loan Company, which administers government-backed loans for tuition and maintenance, had not made it clear enough in the loan application process that the government could retrospectively change the terms and conditions.
The Guardian has reported on the cases of students who owe tens of thousands of pounds and, as a result of high interest rates, whose debt has increased every month even though they are making repayments.
The committee survey of experiences received more than 52,000 responses , more than half said they had not understood the terms and conditions before they took their loan out. One called the repayments “a tax on ambition”.
In April the government announced a cap on loan interest rates of 6% , but it has so far resisted calls to unfreeze the repayment threshold.
The Treasury committee’s chair, Meg Hillier, said it was not common for it to agree that a specific budget measure must be reversed.
“Our report is a signal to the Treasury and the Department for Education that this can no longer be ignored,” she said. “Patience has run out…