The Treasury select committee has concluded that the government's promotion of student loans in England and Wales amounted to mis-selling, citing misleading slideshows and YouTube videos that failed to disclose potential changes to loan terms.
Misleading promotional materials
The committee highlighted three instances of mis-selling. These included YouTube videos and slides that did not disclose that the government could vary the terms and conditions of loans retrospectively, and promotional material suggesting monthly repayments were comparable to a mobile phone contract, which was inaccurate for higher earners. The third instance was that the Student Loan Company had not made it clear enough in the loan application process that the government could retrospectively change terms and conditions.
Repayment threshold freeze under fire
Chancellor Rachel Reeves caused a furore last year when she announced that the repayment threshold on plan 2 student loans would be frozen at £29,385 for three years from April 2027. Above this salary level, graduates must repay 9% of anything they earn, and the freeze means any pay increase is not protected from the rising cost of living. The committee said ministers had a moral obligation to reverse the decision and honour the terms under which the finance was sold to young people.
Impact on graduates
Students from England who started university between September 2012 and July 2023, and students from Wales who started between September 2012 and the present day, took out plan 2 loans. When first announced in 2010, the government said the £21,000 earnings threshold would be uprated annually in line with earnings from 2016. It was then frozen from 2016 to 2018 and again from 2021 to 2025. The committee survey received more than 52,000 responses, with more than half saying they had not understood the terms and conditions before taking out their loan. One respondent called the repayments “a tax on ambition”.
Committee urges reversal
The Treasury committee’s chair, Meg Hillier, said it was not common for the committee to agree that a specific budget measure must be reversed. “Our report is a signal to the Treasury and the Department for Education that this can no longer be ignored,” she said. “Patience has run out.” She said reversing the threshold freeze would be “a modest change that would not eat up vast resources” and would “go a long way to repairing the damage done to the trust between graduates and those responsible for overseeing the student loans system.”
Government response
A government spokesperson said the committee’s report was an “important contribution to the debate on improving the student finance system, and lays bare the confused, and broken system inherited.” They said ministers were looking for ways to make the system fairer in a financially sustainable way, and would respond to the committee 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,” they said.
