Members of Parliament have asserted that Labour has a "moral obligation" to reverse its student loan policy, characterizing it as "unfair" and equivalent to "mis-selling." A report from the Commons Treasury Select Committee criticized Chancellor Rachel Reeves's decision to freeze the earnings threshold for Plan 2 loan repayments at £29,385 for three years starting in 2027.
This freeze means that more individuals with lower earnings will be required to make payments, while those with higher incomes will contribute more, as the threshold will not increase in line with average earnings. The committee contends that this action alters the original terms promised to students who took out these loans between 2012 and 2023.
Students were initially informed that the repayment threshold would be adjusted annually based on average earnings or inflation from 2016. The report states that the actions of successive governments and the Student Loans Company (SLC) have "amounted to mis-selling" because information regarding potential changes to loan terms was not adequately disclosed. The Department for Education (DfE) produced materials, including videos and slides, that allegedly failed to mention the government's ability to alter loan conditions later. The SLC also did not clarify this sufficiently during the loan application process.
Furthermore, the report highlighted that DfE's assertion that monthly repayment costs would be comparable to a phone bill or cinema tickets was "inaccurate for higher earners." While the government is legally exempt from liability for mis-selling these loans, the committee urged ministers to "honour the terms and conditions under which the loans were sold" by rescinding the recent freeze.
Dame Meg Hillier, the Committee Chair, stated, "It is not common for a Treasury Select Committee, made up of MPs from the three largest parties, to agree that a specific Budget measure announced by a Chancellor must be reversed. This can no longer be ignored. Patience has run out." She added, "Ministers openly accept that the system is broken and unfair but have said that it is not a priority to fix it. Reversing last year's threshold freeze is a modest change that would not eat up vast resources."
The report noted that the government is exempt from legal liability for mis-selling, but recommended that ministers comply with consumer protection laws and financial services regulations, such as the Consumer Duty, even if not legally bound to do so. The committee's survey received 52,000 responses, one of the highest rates ever.
Plan 2 loans require graduates to repay 9% of their earnings above the threshold. Interest accrues at RPI plus up to 3%, and any remaining balance is forgiven after 30 years. Critics argue that this policy is a "debt trap" for young people, with average student debts reaching £50,000 per year of study.
A government spokesperson responded by stating, "We are already taking decisive action – raising the repayment threshold in both of the last two years for the first time since 2021, capping maximum interest rates to protect graduates from rising costs, and reintroducing maintenance grants to expand opportunities for people from all backgrounds. We will continue to look for ways to make the system fairer for students, graduates and taxpayers in a financially sustainable way, and will respond to the committee's report in due course. It is vital students are given clear and accurate information so they can make informed decisions about their future and we are working closely with the Student Loans Company on communications to students."