The influential Commons Treasury committee has criticised Rachel Reeves for announcing a three-year freeze on the student loan repayment threshold in last year's Budget. Graduates with Plan 2 loans (taken out between September 2012 and July 2023) currently repay 9% of earnings above £29,385. The threshold was set to be uprated annually with earnings, but will now be frozen from 2027 to 2030.
Committee Calls for Reversal
MPs on the committee urged Rachel Reeves's successor to reverse the decision and to honour the terms under which the loans were sold to students. Andy Burnham is widely expected to succeed Keir Starmer as Prime Minister on July 20, with Ed Miliband and Shabana Mahmood among potential Chancellors. Burnham is said to want to ease the burden of student loans.
The committee's report concluded that the government chose "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." It also noted that the government has taken advantage of student loan policies being exempt from consumer protection laws, meaning it cannot be held liable for mis-selling.
Mis-selling Concerns
MPs highlighted examples of mis-selling, including Department for Education (DfE) YouTube videos and slides that "did not disclose that the government could vary the terms and conditions of loans retrospectively." DfE promotional materials compared monthly loan repayments to the cost of a mobile phone or cinema tickets, which MPs said was inaccurate for higher earners.
Dame Meg Hillier, Chair of the Treasury Committee, said: "Our report is a signal to the Treasury and the Department for Education that this can no longer be ignored. Patience has run out. Ministers openly accept that the system is broken and unfair but have said that it is not a priority to fix it."
Student Response
Lewis Wilson, NUS Vice President of higher education, said: "Student debt is 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 a huge opportunity for a new Labour administration to draw a line between themselves and the current government, show they're listening to the five million Plan 2 graduates and deliver for us in the Autumn budget with some immediate fixes: raise the repayment threshold and lower the repayment rate."
The Government announced earlier this year that interest on student loans will be capped at 6% from September to protect graduates from rising inflation during the war in Iran. Many graduates have found their debt balance has risen or stayed the same despite years of repayments due to inflation. The threshold was previously frozen by Tory governments from 2016 to 2018 and again from 2021 to 2025.
