Report finds student loan promotion amounted to mis-selling

A new report by the Treasury Committee has found that students were not told clearly enough that loan terms could change retrospectively, and called for a U-turn on the decision to freeze the income threshold at which some graduates start repaying their loans.

The report also says that the Government has a moral obligation to reverse the decision to freeze the threshold at which student loans are repaid. When Plan 2 student loans were first announced in 2010, the Government said the £21,000 earnings threshold would be uprated annually in line with earnings from 2016. However, the threshold was then frozen from 2016 – 2018 and again from 2021 to 2025. In the 2025 Budget, the Chancellor announced it would be frozen again from 2027 for three years.

The report concluded that governments have taken the politically convenient option of loading burdens on to younger generations, hoping that they will not notice until future years. The Committee therefore calls on this government to honour the terms and conditions under which the loans were sold by reversing the 2025 Budget threshold freeze at its next Budget.

While the government is exempted from ever being held legally liable for mis-selling the loans, the Committee concludes that the actions of the Department for Education (DfE) and the Student Loans Company (SLC) amount to mis-selling in three instances. They are:

• The DfE has produced YouTube videos and slides that did not disclose that the government could vary the terms and conditions of loans retrospectively
• The DfE produced promotional materials that emphasised a comparison between the monthly cost of student loan repayments and the monthly cost of a mobile phone or cinema tickets, which was inaccurate for higher earners
• The SLC does not make it sufficiently clear in the loan application process that the government can retrospectively change the terms and conditions. This fact is disclosed in the guide to student loans, but is not done with any additional emphasis, as would be expected were this to be a commercial contract

The Committee believes that the Government should comply with consumer protection laws and financial services regulations, such as the Consumer Duty, even if it’s not bound by them, particularly when it comes to being clear with students that it is possible that future governments may change the terms of their loans.

Evidence submitted during the inquiry suggested that for people studying today, the funding balance for university education could be as much as 95% paid by the individual with 5% subsidised by the taxpayer.

Given the Committee’s belief that people going to university benefits not only individuals but the state and wider society, MPs recommend the Government moves towards an overall 50:50 funding balance in the long term.

The report also states the Committee’s continued belief that interest on student loans must be linked to the Consumer Prices Index (CPI), not the Retail Prices Index (RPI).

As part of the inquiry, the Committee invited people to fill out an online survey on their views about the student loans system. The survey received more than 52,000 responses, one of the highest response rates to a select committee inquiry ever.

Chair of the Treasury Committee, Dame Meg Hillier, said “It is not common for a Treasury Select Committee, made up of MPs from the three largest parties, to agree that a specific Budget measure announced by a Chancellor must be reversed. 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. While I understand that there are many competing pressures on a government, reversing last year’s threshold freeze is a modest change that would not eat up vast resources.

“Importantly, I believe it would go a long way to repairing the damage done to the trust between graduates and those responsible for overseeing the student loans system.”