Labour faces a "moral obligation" to reverse its student loan policy, which MPs have described as "unfair" and amounting to "mis-selling," according to a report from the Commons Treasury Select Committee. The committee, composed of MPs from the three largest parties, has called for a reversal of the decision to freeze the earnings threshold for Plan 2 loan repayments.
Chancellor Rachel Reeves announced in the autumn Budget that the threshold for repaying Plan 2 loans would be frozen at £29,385 for three years, starting in 2027. This freeze means that fewer low-earners will have their payments adjusted upwards in line with average earnings, while higher earners will pay more over time. This action deviates from the terms initially presented to students in 2010, who were told the threshold would be updated annually in line with average earnings or inflation from 2016.
"This can no longer be ignored. Patience has run out," stated Dame Meg Hillier, Chair of the Treasury Select Committee. The report criticizes the government for choosing the "politically convenient option" of shifting a financial burden to younger generations, anticipating that the changes might go unnoticed for years.
However, the report also acknowledged that previous Conservative governments contributed to the issue by freezing the threshold between 2016-2018 and again between 2021-2025. The committee's findings suggest that the actions of successive governments and the Student Loans Company (SLC) have collectively resulted in the "mis-selling" of these loans.
Specific concerns were raised about the communication surrounding the loans. The Department for Education (DfE) produced informational materials, including YouTube videos and slides, that failed to disclose the government's ability to alter loan terms and conditions. The SLC also did not adequately clarify these potential changes during the loan application process. The DfE's assertion that monthly repayments would be comparable to a phone bill or cinema tickets was deemed inaccurate for higher earners.
While the report notes that the government is legally exempt from liability for mis-selling, it urges ministers to "honour the terms and conditions under which the loans were sold" by reversing the recent freeze. The committee recommended that the government adhere to consumer protection laws and financial services regulations, such as the Consumer Duty, even if not legally bound.
More than 52,000 individuals responded to a survey conducted as part of the report. Plan 2 loans, issued between 2012 and 2023, require graduates to repay 9% of their earnings above the specified threshold. Outstanding balances are cleared after 30 years, with interest accruing at RPI plus up to 3%.
Dame Meg added that ministers acknowledge the system is "broken and unfair" but have not prioritized fixing it. She argued that reversing the threshold freeze is a "modest change that would not eat up vast resources."
A government spokesperson stated that measures are already in place, including raising the repayment threshold in the last two years, capping interest rates, and reintroducing maintenance grants. The spokesperson added that the government will continue to seek ways to make the system fairer for students, graduates, and taxpayers in a financially sustainable manner and will respond to the committee's report in due course. They emphasized the importance of providing clear and accurate information to students to enable informed decisions and noted ongoing collaboration with the SLC on communications.