UK government to clarify terms of ‘mis-sold’ student loans

The Burnham government has responded to calls to change how student loan information is presented to prospective students to help them make more informed choices about their futures.

The decision is a response to a report by the Treasury Select Committee, published in July, that concluded that the actions of the Department for Education and the Student Loans Company (SLC) amounted to the “mis-selling” of student loans. For instance, the SLC does not “sufficiently” communicate that the government can retrospectively change the terms and conditions of loans.

The new process will stipulate clearly that the terms of the loans are governed by legislation and can be amended by future governments.

Responding to pressure from MPs, the government has also agreed to share more information about how individual life and career decisions could affect any future loan repayments.

In its July report, the Treasury Committee also called on the Treasury to reverse the decision taken in last year’s budget to freeze the earning threshold above which student loans have to be repaid. Rachel Reeves, who was then chancellor, sparked huge backlash by freezing Plan 2 student loan income repayment thresholds at the 2026-27 level – £29,385 – for three years from April 2027. Plan 2 loans apply to students who started undergraduate courses between September 2012 and July 2023.

Advocacy groups, too, are pushing for a reversal of the freeze to feature in the upcoming budget, which John Healey, the new chancellor, will announce on 28 October. However, the government has not yet decided whether to withdraw the proposal, instead saying that all aspects of the student finance system are under review.

The government has also rejected the committee’s recommendations to abandon the use of the retail price index to calculate student loan interest rates and to treat student loan holders in line with the rules of the Financial Conduct Authority’s Consumer Duty.

Dame Meg Hillier, the chair of the Treasury Committee, welcomed the government’s commitment “to right a historical wrong by updating the information so that prospective students are properly informed”, describing the reform as “an important step forward”.

She added: “Unfortunately, though, it doesn’t help graduates who are angry that they didn’t receive the same service and are now facing punitive repayment terms on a loan which keeps growing. And they are juggling that stress with other huge pressures like trying to get on the housing ladder and save for a pension. I say it again, we must give young people a fair chance.

“Importantly, the Treasury has not ruled out reversing the threshold freeze but instead says the whole student finance system is under review. I recognise that finances are tight, but I continue to urge the chancellor to look at this again. I sincerely hope he will use his upcoming budget to give graduates some much-needed breathing space.”

The UK student loan system continues to draw widespread public anger, primarily concentrated on Plan 2 student loans. The extent of public feeling was evidenced in the huge response to an online survey about the student loans system issued by the committee. The survey received more than 52,000 responses, one of the highest ever response rates to a select committee inquiry.

rosalind.skillen@timeshighereducation.com