Key facts
- Prospective students in England will receive clearer guidance on student loans, emphasizing that terms can change.
- The government acknowledged graduate repayment difficulties but did not commit to reversing the freeze on the repayment threshold for Plan 2 loans.
- The Treasury committee report stated the government had a moral obligation to reverse the threshold freeze.
- The government rejected recommendations to issue new loans on a contractual basis, citing the need to adapt to economic circumstances.
- 121 MPs and peers signed a letter urging the chancellor to review the repayment system due to high effective marginal tax rates for middle-income graduates.
The UK government has announced plans to provide clearer information to students in England regarding student loans, aiming to address concerns raised by MPs and campaigners about misleading guidance. Prospective borrowers will be informed that governments can alter repayment rules and that career decisions can influence the total amount repaid. This move follows a report by MPs that criticized the government's use of slideshows and videos that did not mention the possibility of changing loan conditions, calling it mis-selling.
The government acknowledged the difficulties faced by graduates repaying loans and stated it keeps "all aspects of the student finance system under review," but did not commit to reversing a freeze on the repayment threshold for Plan 2 loans, which was announced by then-chancellor Rachel Reeves. The Treasury committee's investigation suggested the government had a "moral obligation" to reverse this freeze to maintain student trust. The committee's report also recommended issuing new loans on a contractual basis so terms could not be changed later, but the government rejected this, citing the need to adapt to changing economic circumstances.
In August, 121 MPs and peers signed a letter to the new chancellor, John Healey, calling for an urgent review of the repayment system. They argued that the frozen thresholds combined with inflation-linked interest rates result in "historically high" effective marginal tax rates for many middle-income graduates, meaning they see less than half of any pay rise. Responding to the government's commitment to clearer guidance, Treasury committee chair Meg Hillier welcomed the step but noted it does not help existing graduates facing punitive repayment terms. She urged the chancellor to reconsider the threshold freeze in the upcoming budget.