The government will require student finance information in England to give applicants a more explicit warning that repayment rules can be changed, but it has rejected several calls to overhaul the system after an inquiry found that loans had been presented in a deeply misleading way.
Ministers accepted proposals to make clear that government and Parliament can amend repayment regulations, and said future guidance should help borrowers understand how their balances may evolve. It declined to commit to reversing a three-year freeze on the Plan 2 repayment threshold, however, leaving one of the policy changes most sought by graduates and campaigners unresolved.
The dispute has focused on loans issued to students in England between September 2012 and July 2023, as well as borrowers in Wales who remain subject to the same framework. These Plan 2 graduates face an interest rate linked to the Retail Prices Index, plus an earnings-related surcharge of up to three percentage points, and repay 9% of income above a threshold intended normally to rise with inflation.
Under the terms, outstanding balances are written off after 30 years. Yet critics argue that the combination of interest, an income-contingent repayment structure and a frozen threshold has left many borrowers paying for longer and contributing more than they were led to expect.
Clearer information to be provided
The accepted changes respond directly to concerns raised by the House of Commons Treasury Committee during its summer inquiry. Future materials will need to stress plainly that the rules governing repayment are not fixed indefinitely and may be altered by government or Parliament.
Officials also accepted that borrowers deserve better help understanding why a loan balance can grow. Rather than providing a single estimate of the total amount a student might ultimately repay, the proposed guidance will illustrate how outcomes vary with salary progression, retraining, part-time work and career breaks.
The government rejected long-term repayment forecasts because it said their accuracy would be too limited and such projections could mislead students. It argued that scenario-based explanations would offer a more useful picture of how different life and career choices affect repayment paths.
The Student Loans Company said it was working with ministers to provide guidance that was “clear, relatable and trusted”. The Department for Education said all parts of student finance would remain under review.
Even so, the response stops short of the sweeping reforms campaigners had requested.
Core reforms rejected
The Treasury Committee examined whether the way student loans were explained to young people constituted an inadequate or unfair sales process. It concluded that comparisons used in government-backed school presentations amounted to mis-selling, particularly after the BBC found that repayments had been likened to £30 monthly phone contracts.
The committee urged ministers to adopt three major changes: split university costs more evenly between the state and students; stop using RPI to calculate interest; and bring promotional materials within the Financial Conduct Authority’s Consumer Duty. That framework sets standards for firms when presenting financial products to consumers.
Ministers rejected all three recommendations. On regulation, they said student loans were “very different to commercial loans”, declining to treat their promotion in the same way as conventional borrowing products.
The decision to retain RPI is likely to keep the issue alive. The index has risen sharply in recent years, lifting the interest charged on existing Plan 2 loans and intensifying concern among graduates whose balances continue to increase even when repayments are paused because earnings fall below the threshold.
Threshold freeze remains unresolved
The most consequential unanswered question is whether the government will lift the repayment threshold from £29,385. The threshold was frozen for three years, preventing it from increasing with inflation alongside its normal treatment.
That decision changes when graduates begin repaying. Under an inflation-linked system, the point at which earnings cross the threshold would rise as prices increased. With the threshold frozen, more people cross it earlier and, once repayments begin, a larger share of their earnings is subject to the 9% charge than would otherwise have been the case.
The Treasury and Department for Education did not say whether ministers intended to reverse the freeze. Their response said only: “We keep all aspects of the student finance system under review.”
New students starting university in England now receive Plan 5 loans. These carry a lower interest rate than Plan 2 loans but have a lower repayment threshold and a longer repayment period, illustrating the trade-offs built into successive versions of the system.
Pressure for a Budget U-turn
Nick Hillman, director of the Higher Education Policy Institute and one of the architects of the Plan 2 system, said the government had “absolutely rejected” most of the committee’s recommendations. He warned that the response would not satisfy Plan 2 graduates who believe they were not given an adequate account of what borrowing would involve.
Oliver Gardner, founder of the Rethink Repayment campaign, said the response “does not go far enough”. He said campaigners wanted “concrete action” in the autumn Budget, including an end to the threshold freeze.
Dame Meg Hillier, chair of the Treasury Committee, welcomed clearer information as “an important step”, but said it did little for borrowers facing rising balances and what she described as punitive repayment terms. She called on the chancellor to reverse the freeze in the autumn Budget.
The controversy has already spilled into Parliament. More than 120 MPs and peers signed a letter, coordinated by Rethink Repayment, demanding an “urgent review” of student finance. Liberal Democrat MP Tom Gordon, himself a Plan 2 borrower, is due to introduce a bill seeking a parliamentary review next week.
Education Secretary Lucy Powell has previously described the Plan 2 interest rate as “egregious”, signalling that the issue sits high on the government’s education agenda. Her department is now under pressure to show whether clearer explanations are enough, or whether borrowers will see changes to the rules themselves.
The BBC investigation also uncovered instructions telling school presentation staff to avoid words and phrases such as “debt”. Those remarks, made a decade ago, have become central to the argument that generations of students were not equipped to assess the full financial implications of tuition fee loans.
Why it Matters
For millions of Plan 2 borrowers, this is not an abstract debate about student communications. It concerns whether a system built around income-contingent repayments can be considered fair when interest can outpace earnings, the threshold is frozen and the terms remain susceptible to political change. Clearer warnings may improve informed decision-making for future students, but they do not repair the financial burden already carried by graduates who accepted the deal on the basis of government guidance.
