Reverse student loan threshold freeze and scrap RPI, MPs urge

The government has a “moral obligation” to reverse the student loan repayment threshold freeze made in last year’s budget, MPs have said, after finding that loans have been promoted to students in “deeply problematic” ways. 

A report from the House of Commons’ Treasury select committee, published on 7 June, describes the student loan system as “unfair” and warns that the government must fix it to avoid further disillusionment among students and graduates. 

Recommendations include abandoning the use of the Retail Prices Index (RPI) to calculate loan interest rates, ensuring parity between the amount students and the state contribute towards the cost of a degree, and to explicitly warn all new loan holders that the terms can be changed retrospectively. 

Most strikingly, the committee has called on the Treasury to reverse the three-year freeze to the repayment threshold imposed in last year’s autumn budget.

It noted that successive governments have frozen the repayment threshold “despite repeated commitments…when the loans were taken out that that would not happen”. 

“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,” said Meg Hillier, chair of the Treasury committee. “Our report is a signal to the Treasury and the Department for Education that this can no longer be ignored. Patience has run out.”

The latest repayment threshold freeze is expected to raise £255 million next year, rising to £355 million in the 2029-30 fiscal year. 

“The government has a moral obligation to deliver this modest fiscal reversal not only to maintain students’ trust in government, but to honour the terms and conditions under which those loans were sold to students,” the report says.

Hillier added: “Importantly, I believe it would go a long way to repairing the damage done to the trust between graduates and those responsible for overseeing the student loans system.”

The report accuses previous governments of mis-selling the loans, noting that both the Department for Education and the Student Loans Company produced promotional materials that “did not fully reflect” the costs of student loan repayments for higher earners or “sufficiently communicate that government can retrospectively change the terms and conditions of the loans”. 

It later concludes that the ways in which student loans have been promoted and communicated were “deeply problematic”. 

The report recommends ensuring that any future promotional materials are compliant with Financial Conduct Authority rules, even though the government has exempted student loan policies from consumer protection laws. 

The committee went on to criticise current ministers for describing the student loan system as “broken” but not attempting to remedy it because of other financial pressures.

“It is untenable for the government to state publicly that the system is broken and unfair, but not take the necessary steps in successive budgets to fix it,” the report says. 

“Although balancing the books today is important, the government cannot always choose the politically 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.”

The committee’s survey, which asked for opinions on the student loan system, received 52,000 responses – one of the largest ever responses to a select committee survey. The group also heard from experts and reviewed formal evidence submissions. 

The report says the loan system “is layering stress on to people in their 20s and 30s in a way that did not apply to previous generations”, adding that the country “needs the younger generation to be the engine room of Britain in the years to come”. 

The committee called for a rebalancing of how much of a student’s degree is funded by the individual versus the state, noting that students today “could be paying as much as 95 per cent of the cost of their higher education”. 

MPs said the government should return the balance to a 50:50 split in the long term.  

Lewis Wilson, the National Union of Students’ new vice-president for higher education (England), said student debt was “growing by £1,000 a second”.

“Young people have been mis-sold mortgage-sized debts that politicians can raise repayments on at the drop of a hat. The government has acted like a loan shark while we struggle to even pay our rent – there is of course a clear, moral obligation to fix student loans.”

He said there was a “huge opportunity” for a new Labour administration to deliver “immediate fixes” in the next budget by raising the repayment threshold and lowering the repayment rate.

But “fundamental reform” was also needed by the end of the parliament, Wilson said, calling for a system that is “just, fair, and affordable for all”.

helen.packer@timeshighereducation.com