University applicants in England will receive more transparent information regarding student loans, the government announced, following an inquiry that highlighted concerns over mis-selling. Ministers stated that the updated guidance will clearly outline that governments can alter repayment terms and that a borrower's career path can influence the total amount repaid.
The government has agreed to some, but not all, of the recommendations made by Members of Parliament (MPs) after an investigation into student loan practices. The response did not specify whether a freeze on the repayment threshold for some graduates would be reversed.
The inquiry found that the way student loans were presented to young people amounted to mis-selling. Reports indicated that the Department for Education (DfE) had previously compared loan repayments to monthly mobile phone contracts.
The recent discussions have primarily focused on Plan 2 loans, which were issued in England between September 2012 and July 2023, and are still in use in Wales. These loans carry an interest rate tied to the Retail Prices Index (RPI) plus up to 3%, contingent on earnings. Borrowers are required to repay 9% of their income above a specific threshold, which is intended to adjust annually with inflation. Any remaining balance is written off after 30 years.
Campaign groups have advocated for a reduced interest rate, a lower repayment rate, and the reversal of a decision made last year to freeze the repayment threshold at £29,385 for three years in England. Freezing this threshold means graduates begin repaying their loans sooner and, consequently, pay more than they would have if the threshold had increased with inflation.
MPs on the Treasury Committee had called for a reversal of the threshold freeze as part of their recommendations from the summer inquiry. In their response, the Treasury and the DfE stated that "all aspects of the student finance system are kept under review," but did not commit to unfreezing the threshold. The government rejected other recommendations, including splitting university costs evenly between students and the government, ceasing the use of RPI for interest rate calculations, and ensuring promotional materials adhere to the Financial Conduct Authority's Consumer Duty, arguing that student loans differ significantly from commercial loans.