Key facts
- MPs accuse the UK government of mis-selling student loans through misleading promotional materials.
- Promotional materials compared student loan repayments to phone contracts, which MPs deemed inaccurate for higher earners.
- Students were not clearly informed that government-backed loan terms could change retrospectively.
- The Treasury Committee called for the reversal of the frozen income threshold for Plan 2 student loan repayments.
- The committee stated that while the government is exempt from consumer protection laws, it should adhere to fairness and common decency.
A group of UK MPs has accused the government of mis-selling student loans to teenagers through misleading promotional materials. The Treasury Committee's report highlighted that comparisons of loan repayments to items like phone contracts were inaccurate for higher earners and amounted to mis-selling.
The committee also stated that students were not clearly informed about the potential for loan terms to change retrospectively. They have called for the government to reverse its decision to freeze the income threshold at which graduates begin repaying their loans, a move that means graduates start repaying sooner or pay more as their salaries rise with inflation while the threshold remains static.
Plan 2 loans, issued between September 2012 and July 2023 in England, require graduates to repay 9% of their earnings above the threshold. The report referenced promotional materials that compared student loan repayments to a £30-a-month phone contract. The committee acknowledged that while the government is exempt from consumer protection laws, it should still adhere to principles of fairness and common decency.
Graduates have reported that their actual repayments were significantly more than promotional comparisons suggested, and that their overall debt had increased due to compounding interest. The committee's inquiry was launched amid widespread dissatisfaction with repayment terms, with many respondents indicating they did not fully understand their loan conditions before taking them out.
Plan 2 loans have since been replaced by Plan 5 loans for new undergraduates in England, which have a lower salary repayment threshold and a longer write-off period. However, the committee noted that this shift places a greater burden on all loan holders rather than just new borrowers.