University applicants in England will be given clearer information about student loans before they take them out, the government has said. Ministers said they would spell out that governments can change repayment rules and that different career choices can affect how much borrowers repay. They agreed to some but not all of the recommendations made by MPs after an inquiry into student loans, and did not say whether they would reverse a freeze to the repayment threshold for some graduates.
The inquiry found the way loans had been presented to teenagers amounted to mis-selling, after the BBC revealed the Department for Education (DfE) had compared repayments to £30-a-month phone contracts. The recent debate has centred around Plan 2 loans, which were issued in England between September 2012 and July 2023, and are still issued in Wales. The interest rate on those loans is the Retail Prices Index (RPI) measure of inflation plus up to 3% depending on earnings, and borrowers repay at a rate of 9% of everything they earn over a repayment threshold, which is meant to rise with inflation every year.
The loans are written off after 30 years. Campaigners want a lower interest rate, a lower repayment rate and for the government to reverse a decision last year to freeze the threshold at £29,385 for three years in England. Freezing that threshold means graduates start repaying their loans sooner and, once they do, they pay more than they would have done if it had risen with inflation.
MPs on the Treasury Committee called for a U-turn on that decision as part of a series of recommendations after an inquiry this summer. The Treasury and the DfE did not say whether ministers would unfreeze the threshold in their response, but said: "We keep all aspects of the student finance system under review." The government rejected recommendations to: Split the cost of university evenly between the student and the government Stop using RPI to calculate interest rates Ensure promotional materials comply with Financial Conduct Authority's Consumer Duty, saying student loans were "very different to commercial loans" However, it agreed to "making it more prominent that... regulations may be amended by government and Parliament". It also said "more can be done to help student loan borrowers understand how their loan balance may change over the long term".
The government also said giving students long-term predictions of how much they might ultimately repay risked being "misleading" because of "limited" accuracy. It proposed instead to "demonstrate how different life and career choices may affect repayment trajectories", including salary progression, retraining, part-time work, and career breaks. How student loans work for tuition fees and living costs 'Deeply misleading' school talks compared student loans to £30 phone contracts Phone contract comparisons 'amounted to mis-selling' student loans, MPs say Students starting university in England now have Plan 5 loans, which have a lower interest rate but also a lower threshold and longer repayment term.
Nick Hillman, director of the Higher Education Policy Institute, who helped design the Plan 2 system, said the government had "absolutely rejected" most of what the Treasury Committee had recommended and its response would not meet the concerns of Plan 2 graduates. Oliver Gardner, founder of the Rethink Repayment campaign, said the government's response "does not go far enough" and he wanted to see "concrete action" in the autumn Budget. While Dame Meg Hillier, chair of the Treasury Committee, said making information clearer was "an important step" but "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".
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