The UK government has announced it will redesign guidance for new student loan borrowers to make terms and conditions clearer, following criticism from MPs that previous information amounted to mis-selling. However, it has not committed to reversing the freeze on the repayment threshold, which has been a point of contention for graduates.
Government responds to mis-selling allegations
In July, a report by the Treasury committee claimed that government materials, including slideshows comparing loan repayments to mobile phone contracts and YouTube videos that omitted the possibility of changing conditions, misled students. The report followed the November announcement by then chancellor Rachel Reeves that the repayment threshold for Plan 2 loans in England would be frozen at £29,385 for three years from April 2027. The current threshold for this plan is £28,470.
The committee argued that the government had a "moral obligation" to reverse the freeze to maintain trust and honour the terms under which loans were sold. In its response, published on Sunday, the government acknowledged the difficulties faced by graduates but said it keeps "all aspects of the student finance system under review" without committing to policy changes.
No reversal of threshold freeze
The government rejected the committee's recommendation to issue new loans on a contractual basis, stating it needs flexibility to adapt to economic circumstances and keep taxpayers' contributions stable. Instead, it will redesign guidance for new students to be "clear and unambiguous."
In August, 121 MPs and peers from across party lines signed a letter to Chancellor John Healey calling for an urgent review. The letter highlighted that frozen thresholds combined with inflation-linked interest rates have led to "historically high" effective marginal tax rates for young teachers, nurses, engineers, and entrepreneurs.
Calls for action and government stance
Treasury committee chair Meg Hillier welcomed the improved guidance as "an important step forward" but noted it does not help graduates facing "punitive repayment terms on a loan which keeps growing." She urged the chancellor to reconsider the freeze, saying, "I sincerely hope he will use his upcoming budget to give graduates some much-needed breathing space."
A government spokesperson said they are "taking decisive action to improve the student finance system," citing increased maximum maintenance loans, reintroduced targeted maintenance grants, and the first rise in the Plan 2 repayment threshold since 2021. The spokesperson added that they will continue to seek ways to make the system fairer in a financially sustainable way.
