A cross-party group of MPs has called for the next Treasury chief to scrap the three-year freeze on student loan repayment thresholds for graduates.
The Commons Treasury Committee, in its latest report, also starkly warned the government's actions amounted to "mis-selling" the loans.
Ministers face significant criticism over their handling of graduate repayment terms, particularly affecting those with "Plan 2" loans issued in England between September 2012 and July 2023.
The Chancellor, during the October budget, froze the salary threshold for loan repayments for three years, commencing in 2027.
From next year until 2030, graduates will be required to pay back 9% of everything earned above £29,385.
This measure will likely leave graduates significantly worse off, as the repayment threshold would otherwise have risen with inflation.
When they were first created in 2010, the plan 2 loan threshold was meant to be uprated with inflation each year, but it has been frozen on several occasions since 2016.
The Treasury Committee’s latest report said student loan system was “layering stress” on people in their 20s and 30s, which their parents and other previous generations did not face.
The younger generation should be the “engine room” of the country, the committee said, and it described the threshold freeze as a “convenient option of loading additional fiscal burdens on to younger generations while hoping that young people will not notice the extra weight for decades to come”.
Ministers must commit to reversing the freeze at the next budget in the autumn, the committee said, when a new Government likely led by Andy Burnham will be in power.
Reversing it would cost £355 million by the 2029–30 financial year, the MPs said, adding the “modest fiscal reversal” would help to maintain students’ trust in the Government.
Chair of the Treasury Committee, Dame Meg Hillier, said: “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. Our report is a signal to the Treasury and the Department for Education that this can no longer be ignored. Patience has run out.
“Ministers openly accept that the system is broken and unfair but have said that it is not a priority to fix it. While I understand that there are many competing pressures on a government, reversing last year’s threshold freeze is a modest change that would not eat up vast resources.
“Importantly, I believe it would go a long way to repairing the damage done to the trust between graduates and those responsible for overseeing the student loans system.”
Elsewhere in the report, the MPs took aim at actions it said amounted to mis-selling, though it added the Government was exempt from ever being held legally liable for mis-selling the loans.
It highlighted three things:
- Department for Education (DfE) YouTube videos which did not disclose the Government can change the terms of the loans retrospectively.
- Adverts comparing the monthly costs of the loan repayments to mobile phone bills or cinema tickets, which is not accurate for higher earners.
- A lack of clarity by the Student Loans Company in the application process that the Government can vary the terms and conditions of loans.
The Government announced earlier this year that this interest will be capped at 6% from September to protect graduates from rising inflation during the war in Iran.
Many graduates have found that despite years of repayments, their debt balance has either risen or stayed the same as a result of inflation.
While the committee welcomed the interest cap as a “step in the right direction”, it said this would only benefit the highest earning graduates who will pay back their loan in full.
A Government spokesperson said the MPs’ report “lays bare the confused and broken system inherited by this Government”.
They added: “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.”
The spokesman also said it was “vital students are given clear and accurate information so they can make informed decisions about their future”, adding: “We are working closely with the Student Loans Company on communications to students.”
A Student Loans Company spokesperson said the company recognises “the importance of ensuring that students and borrowers across all repayment plans have access to clear, accurate and timely information about student finance”.
“We take this responsibility seriously and we will continue to work closely with the Department for Education, including on any wider actions arising from the report,” they added.
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