Student loan terms to be made clearer in England

The UK government has committed to providing clearer information to prospective university students in England regarding student loans before they commit to borrowing. Officials emphasized that repayment rules can be altered by future governments and that the amount repaid varies depending on the borrower’s career path.

Following an inquiry by MPs into the student loan system, ministers accepted some but not all of the suggested changes. However, they declined to clarify whether the current freeze on the repayment threshold for certain graduates would be lifted. The inquiry was prompted by findings that the way student loans were presented to young people resembled mis-selling, notably after a BBC investigation revealed that the Department for Education had likened loan repayments to £30-a-month phone contracts.

The ongoing discussion has primarily focused on Plan 2 loans, issued in England between September 2012 and July 2023, and still available in Wales. These loans carry an interest rate based on the Retail Prices Index (RPI) plus up to 3% depending on earnings. Borrowers repay 9% of their income above a threshold intended to rise annually with inflation, and any outstanding debt is written off after 30 years. Campaigners are calling for a reduced interest rate, a lower repayment level, and a reversal of last year’s decision to freeze the repayment threshold at £29,385 for three years in England. The freeze effectively brings forward repayments and increases the amounts paid compared to if the threshold had continued to rise with inflation.

Members of the Treasury Committee urged the government to reverse the threshold freeze in their recent recommendations. Yet, the Treasury and Department for Education’s response did not commit to doing so, stating only that the student finance system remains under ongoing review. The government also rejected calls to split university costs evenly between students and the state, change the method for calculating loan interest by ending the use of RPI, and ensure that student loan promotional material aligns with the Financial Conduct Authority’s Consumer Duty—highlighting that student loans differ significantly from commercial loans.

Students who have recently started university in England are now taking out Plan 5 loans, which come with lower interest rates but feature a reduced repayment threshold and extended repayment terms. Nick Hillman, director of the Higher Education Policy Institute and a contributor to the Plan 2 system’s design, criticized the government’s response, saying it had “absolutely rejected” most Treasury Committee recommendations and failed to address the concerns of Plan 2 borrowers. Similarly, Oliver Gardner, founder of the Rethink Repayment campaign, stated that the response “does not go far enough” and called for “concrete action” in the upcoming Autumn Budget.

Dame Meg Hillier, chair of the Treasury Committee, described the government’s promise to improve clarity as “an important step” but argued it does little for graduates frustrated by what they perceive as poor service and harsh repayment conditions on loans that continue to grow. She urged the Chancellor to reconsider the repayment threshold freeze in the Budget this autumn. A BBC investigation earlier this year exposed past government strategies aimed at minimizing perceptions of debt in school presentations, including instructions to avoid terms like “debt” and comparisons of loan repayments to phone contract fees.

In response to ongoing concerns, over 120 MPs and peers signed a letter, coordinated by Rethink Repayment, calling for “an urgent review” of the student loan system. Liberal Democrat MP Tom Gordon, himself a Plan 2 borrower, plans to introduce a bill in Parliament to initiate such a review. Education Secretary Lucy Powell has acknowledged the issue, describing the interest rates on Plan 2 loans as “egregious” and placing the matter high on her agenda. Meanwhile, the Student Loans Company confirmed its collaboration with the government to deliver clear, credible, and accessible guidance to borrowers

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