A cross-party group of MPs says the Department for Education and Student Loans Company effectively mis-sold student loans by failing to make clear that repayment terms could be changed after people had signed up. If a bank behaved like this, regulators could step in. The government faces no such legal risk.
The Treasury Committee examined Plan 2 loans, which cover many students who started university in England between 2012 and 2023. When the system was announced in 2010, the government said graduates would begin repaying when their earnings reached £21,000, and that threshold was supposed to rise with average earnings from 2016.
It didn't.
The threshold was frozen from 2016 to 2018, frozen again from 2021 to 2025, and in the 2025 Budget the Chancellor announced another three year freeze from 2027.
A frozen threshold sounds harmless. It isn't. As wages rise, more graduates are pulled into making repayments, and others pay more than they would have if the original promise had been kept. MPs say governments chose to place the cost on younger workers in the hope that many would not notice until the money started leaving their wages.
The committee found three examples of what it called mis-selling. Department for Education videos and presentation slides did not explain that ministers could change loan terms retrospectively. Some promotional material compared repayments with the monthly cost of a mobile phone or cinema tickets, a comparison the committee says was inaccurate for higher earners. The Student Loans Company does mention the government's power to change the terms in its guidance, but MPs found the warning was not made clear enough during the application process.
Students could hardly shop around. For most, the choice was to accept the government's loan or give up on university.
The committee says the government should follow the same consumer standards expected of banks and other financial firms, even though it is not legally required to do so.
That distinction matters. A private lender can face action for selling a financial product without making the risks clear. The government can write its own exemption, change the repayment terms and continue taking the money through the tax system.
Ministers deserve some credit for accepting that the student finance system is unfair. But acknowledging a broken system is not the same as repairing it.
The committee wants the planned threshold freeze reversed at the next Budget, and student loan interest linked to the Consumer Prices Index rather than the Retail Prices Index. Evidence given to the inquiry suggested that people studying today could end up paying as much as 95 per cent of the cost of their university education, with the taxpayer covering 5 per cent, and MPs want that balance moved towards 50:50 over time.
The inquiry received more than 52,000 survey responses, one of the largest ever received by a parliamentary committee. This was not a handful of graduates complaining that they had to repay money they borrowed. The complaint was that the terms presented at the start were not the terms governments later chose to keep.
Dame Meg Hillier, chair of the Treasury Committee, said ministers had damaged trust between graduates and the bodies running the loan system. She also pointed out how unusual the committee's demand was, MPs from the three largest parties agreeing that a specific measure announced by a Chancellor should be reversed.
The government told students the repayment threshold would rise with earnings.
It froze it instead.