Treasury Committee demands U-turn on frozen student loan thresholds

The news

The Treasury select committee has found that government promotion of student loans amounted to mis-selling. Slideshows comparing repayments to mobile phone contracts and YouTube videos that omitted the fact that loan terms could change were highlighted in the report published on Tuesday. Rachel Reeves announced last year that the repayment threshold on plan 2 loans would be frozen at £29,385 for three years from April 2027. The committee says ministers have a moral obligation to reverse this decision and honour the original terms sold to students.

What's at stake

The decision affects graduates repaying plan 2 student loans across England and Wales. The threshold determines the income level above which repayments begin. Freezing it at £29,385 from April 2027 means graduates will start repaying at a lower real income than originally indicated as inflation rises. One borrower told the BBC her remaining student loan balance stands at £70,000 after completing undergraduate and postgraduate degrees in 2018. She said a higher salary would increase her repayments and leave her with less disposable income, limiting career progression to roles in bigger firms. The committee argues the government should comply with consumer protection standards such as the Consumer Duty even though it is exempt from legal liability for mis-selling.

The case for

Freezing the repayment threshold breaks the original terms under which the loans were sold to students and erodes trust. Promotional material failed to disclose that future governments could vary terms retrospectively. This has left graduates facing higher effective repayments than they were led to expect when they took out the loans. The Treasury select committee states that the Department for Education and the Student Loans Company actions amount to mis-selling in three specific instances. Reversing the freeze would restore the original threshold terms and demonstrate that the government stands by the promises made to young people entering higher education.

The case against

Freezing the repayment threshold is necessary to manage public finances and control costs to the taxpayer. The scale of outstanding student loans requires measures to limit the burden on government borrowing. Without such action the long-term cost to the public purse would increase as more graduates repay less in real terms. The government has already taken steps to cap interest on some student loans at 6% in the next academic year. Maintaining the freeze supports fiscal stability at a time when broader pressures on public spending remain significant.

Why it matters now

If the government reverses the freeze the repayment threshold would rise with inflation after April 2027, reducing the monthly amount many graduates pay. If the decision stands the freeze remains in place for three years, increasing the effective cost for those earning above the fixed level. The committee's report adds immediate pressure on ministers to respond. Any change would affect the cohort of students who entered repayment expecting the original terms, while the public finance implications would shape spending plans in the years ahead.

Further reading

The Guardian · credit-connect.co.uk

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