A cross-party group of MPs has urged the government to reconsider the freeze on student loan repayment thresholds, arguing that it has increased repayment costs for millions of graduates without the level of transparency borrowers expected.
In a report published by the Treasury Select Committee, MPs said ministers have a “moral obligation” to review the policy and called for wider reforms to the student finance system.
The committee criticized successive governments for freezing the income threshold at which many graduates begin repaying their student loans.
When the Plan 2 student loan system was introduced, the repayment threshold was set at £21,000, with the expectation that it would increase annually in line with average earnings from 2016.
Instead, governments have implemented several freezes over the past decade.
Timeline
The repayment threshold has been frozen on multiple occasions.
| Period | Repayment Threshold Policy |
|---|---|
| 2016 – 2018 | Threshold frozen |
| 2021 – 2025 | Threshold frozen |
| From April 2027 | Threshold of £29,385 frozen for three more years |
According to campaigners, these freezes mean more graduates begin repaying their loans sooner or repay larger amounts than they might have expected if the threshold had continued rising with earnings.
Concerns
The Treasury Select Committee said many borrowers may not have fully understood that the terms of their student loans, including repayment thresholds, could be changed after they took out the loans.
The report raised concerns about government information provided to students, including promotional videos and guidance documents.
MPs said some materials did not clearly explain that repayment conditions could be amended in the future through government policy.
The committee also questioned comparisons that described repayments as being similar to the cost of everyday expenses, arguing that those examples may not accurately reflect the experience of all borrowers.
Student Loans Company
The report also examined information provided by the Student Loans Company.
According to MPs, details explaining that loan terms may change over time were included in guidance documents but were not always presented prominently.
The committee noted that commercial lenders are generally required to provide clear information about lending terms, although student loans operate under different legal arrangements.
Recommendations
The committee made several recommendations aimed at improving fairness and transparency within the student finance system.
These include:
- Reviewing the repayment threshold freeze
- Providing clearer information to future borrowers
- Linking student loan interest rates to the Consumer Prices Index (CPI) instead of the Retail Prices Index (RPI)
- Considering a longer-term balance in which the costs of higher education are shared more evenly between graduates and taxpayers
MPs suggested that, over time, a 50:50 funding split between graduates and the state could be explored.
Response
Dame Meg Hillier, Chair of the Treasury Select Committee, said the government recognizes challenges within the current system but has not treated reform as an immediate priority.
She said reversing the repayment threshold freeze would not place a significant burden on public finances compared with broader spending commitments.
Student finance campaigners also welcomed the report, saying it reflects concerns that have been raised by graduates for several years.
Impact
The committee’s report was informed by more than 52,000 responses to its public survey, making it one of the largest responses received during a select committee inquiry.
For graduates with Plan 2 student loans, future government decisions on repayment thresholds and interest rates could influence how much they repay over the lifetime of their loans.
At this stage, the report contains recommendations rather than policy changes. Any changes to repayment thresholds or interest calculations would require government approval before taking effect.
FAQs
What is the student loan threshold freeze?
It pauses increases to the income level where repayments begin.
Who is affected by the freeze?
Mainly graduates with Plan 2 student loans.
Have repayment rules changed yet?
No. MPs have made recommendations, not law changes.
What interest rate change is being proposed?
MPs recommend linking interest to CPI instead of RPI.
