MPs call for end to freeze on student loan repayment thresholds
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, reports BritPanorama.
The Commons Treasury Committee, in its latest report, warned that 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 could leave graduates significantly worse off, as the repayment threshold would otherwise have risen with inflation. Originally, the Plan 2 loan threshold was intended to be uprated with inflation each year, but it has been frozen on several occasions since 2016.
The Treasury Committee’s report stated that the student loan system was “layering stress” on people in their 20s and 30s, which previous generations did not face.
The younger generation should be the “engine room” of the country, the committee asserted, describing 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 urged, when a new government likely led by Andy Burnham takes power.
Reversing the freeze would cost £355 million by the 2029–30 financial year, the MPs noted, adding that this “modest fiscal reversal” would help maintain trust in the Government among students.
Chair of the Treasury Committee, Dame Meg Hillier, stated, “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.”
She emphasized, “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.”
Dame Meg Hillier also highlighted that this move would go a long way toward repairing the damaged trust between graduates and those overseeing the student loans system.
Elsewhere, the report criticized actions that it deemed mis-selling, noting that the Government is exempt from being held legally liable for mis-selling the loans.
The MPs pointed out several key issues:
- Department for Education YouTube videos that failed to disclose the Government can retrospectively change the terms of the loans.
- Adverts that inaccurately compared the monthly costs of loan repayments to mobile phone bills or cinema tickets for higher earners.
- A lack of clarity from the Student Loans Company regarding the Government’s ability to vary loan terms and conditions during the application process.
The Government announced earlier this year that interest would be capped at 6% from September to protect graduates from the effects of 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 due to inflation.
While the committee welcomed the interest cap as a “step in the right direction,” it noted that this would primarily benefit the highest-earning graduates who will pay back their loans in full.
A Government spokesperson stated that the MPs’ report “lays bare the confused and broken system inherited by this Government.”
The spokesperson 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 spokesperson also emphasized the importance of providing students with clear and accurate information so they can make informed decisions about their future, asserting, “We are working closely with the Student Loans Company on communications to students.”
A Student Loans Company spokesperson acknowledged the need for clear, accurate, and timely information for students and borrowers across all repayment plans, pledging continued collaboration with the Department for Education.
