A scathing official report has accused the United Kingdom government of mis-selling student loans, labeling the current system as "broken and unfair." The Treasury Select Committee's probe has called for the government to reverse its decision to freeze the repayment threshold for certain student loans.

The report details how the student loan system has evolved since the late 1990s, when students received grants instead of paying fees. Since the introduction of fees, successive governments have altered and toughened the terms of these loans, coinciding with rising tuition costs.

Student Loan Plans and Repayments

The report outlines different loan plans based on when a student began their course:

  • Plan 1: For students who started a course before September 1, 2012.
  • Plan 2: For graduates who started university between September 2012 and July 2023, and students in Wales since then. This group is identified as having received the "rawest deal."
  • Plan 4: For those who applied through the Student Awards Agency Scotland.
  • Plan 5: For English students starting a course on or after August 1, 2023.

Undergraduate borrowers on Plans 1, 2, and 4, and those on Plan 5, are required to repay 9 percent of any earnings above a specific threshold. These thresholds vary: £26,900 for Plan 1, £29,385 for Plan 2, £33,795 for Plan 4, and £25,000 for Plan 5. Postgraduate loan borrowers pay 6 percent of earnings over £21,000.

Interest rates also differ. Loans taken out before and after Plan 2 accrue 3.2 percent interest, linked to the Retail Price Index (RPI). Plan 2 loans accrue interest based on income. Those earning less than £29,385 are charged 3.2 percent. For incomes between £29,385 and £52,884, interest rates increase by up to 3 percent. Earnings of £52,885 or more face a 6.2 percent interest rate this year, with a cap of 6 percent from the 2026-27 academic year.

Controversy and "Mis-selling" Claims

The student loan system gained significant attention following a dispute between finance presenter Martin Lewis and Chancellor Rachel Reeves over the frozen repayment threshold for Plan 2 graduates. This freeze means that as lower-earning graduates increase their salaries, a larger portion of their income is directed towards loan repayments, a phenomenon known as fiscal drag.

Graduates have claimed they were initially told that loan repayments would be comparable to mobile phone contracts. However, many are now facing outstanding balances exceeding £100,000, with some loan balances growing faster than they are being repaid. Data from the Student Loans Company indicates that over seven million student loan balances increased as of May, while only approximately 1.5 million decreased.

The report condemns the use of RPI for calculating interest, advocating for the lower Consumer Price Index (CPI) instead. While a 6 percent interest cap has been set for Plan 2 and 3 loans, the report notes this primarily benefits those who will repay their loans in full.

The report's most critical finding is that the government "mis-sold" student loans on three counts. Promotional materials allegedly compared monthly repayments to mobile phone contracts or cinema tickets, understating the potential burden for high earners. Furthermore, the Department for Education (DfE) produced materials that did not disclose the government's ability to retroactively change loan terms and conditions. The Student Loans Company (SLC) also failed to make sufficiently clear during the application process the possibility of such retrospective rule changes.

Despite these findings, the government is not legally liable for mis-selling due to an exemption from consumer protection laws. However, the report states, "No government should ever have taken advantage of this exemption by pursuing lending practices that cause consumer detriment."