MPs say Student Loans Mis Sold With Moral Obligation to Reverse the Repayment Threshold Freeze

Key takeaway

MPs say successive governments promised Plan 2 loan terms that were later changed, froze repayment thresholds contrary to original commitments, and promoted loans in ways that downplayed long‑term costs. They argue this amounts to mis‑selling — even though graduates have no legal recourse — and call for urgent reform.

Why MPs say student loans were “mis‑sold”

The Committee identified three mis‑selling behaviours:

• Failure to disclose retrospective changes: DfE videos and slides omitted the fact that government can change loan terms after students sign.

• Misleading promotional comparisons: Materials likened repayments to a mobile phone or cinema ticket — inaccurate for higher earners and minimising long‑term cost.

• Insufficient warnings in the SLC application process: The ability for government to alter terms was buried in guidance without emphasis, unlike commercial credit agreements.

MPs say these practices would breach Consumer Duty if student loans were regulated like normal financial products.

The threshold freeze: why it matters

Plan 2 loans were sold on the basis that the repayment threshold would rise annually with earnings from 2016. Instead, it was:

• Frozen 2016–2018

• Frozen 2021–2025

• Frozen again from 2027 for three years (2025 Budget)

Freezing the threshold means graduates repay more each year, because any pay rise pulls more income into the 9% repayment band. MPs say this is a retrospective contractual change that would be unacceptable in any commercial lending context.

“Unfair and broken” system

The Committee concludes the system:

• Leaves most graduates never repaying in full

• Creates widespread dissatisfaction

• Loads fiscal pressure onto younger generations in ways previous cohorts did not face

They argue that governments have repeatedly taken the “politically convenient option” of shifting costs onto young people, hoping the impact won’t be noticed for decades.

Who pays for university now?

Evidence suggests today’s students may be funding up to 95% of their education personally, with only 5% subsidised by taxpayers. MPs say this contradicts Parliament’s original intention and recommend moving back to a 50:50 funding balance.

Interest rates: RPI vs CPI

The Committee says RPI is “discredited” and should be replaced with CPI for student loan interest calculations.

No legal recourse — but political pressure

Although the Government is legally exempt from mis‑selling claims, MPs say the behaviour clearly meets the definition of mis‑selling in consumer finance. Graduates may feel vindicated, but no compensation or legal remedy is expected.

The Committee’s stance — unusually unanimous across parties — is intended to force the Treasury to act. Dame Meg Hillier says “patience has run out”.

What this means for reform

The report strengthens the case for:

• Reversing the 2027–2030 threshold freeze

• Binding student loans to Consumer Duty‑style fairness rules

• Ending retrospective changes

• Rebalancing taxpayer vs graduate contributions

• Switching interest calculations from RPI to CPI

It also highlights the stark contrast between strict regulation of commercial lenders and the Government’s exemption from consumer protection, despite loans being marketed like ordinary financial products.