THE TREASURY has not ruled out scrapping the threshold freeze for graduates repaying their student loans, saying all aspects of the finance system are kept under review.
The Government has also agreed to making it clearer that the terms and conditions of a student loan can be changed by future governments after the Commons Treasury Committee warned the way the loans have been presented has amounted to mis-selling.
Ministers have faced criticism for how they have handled repayment terms for graduates, in particular those with so-called “plan 2” loans taken out between September 1 2012 and July 31 2023 in England.
At the budget last October, then-chancellor Rachel Reeves froze the salary threshold at which graduates repay the loan for three years from 2027.
Graduates will likely be left worse off as a result, as the threshold would have otherwise risen with inflation.
When they were first created in 2010, the plan 2 loan threshold was meant to be uprated with inflation each year, but it has been frozen on several occasions since 2016.
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In a report published in July, the Treasury Committee urged ministers to commit to reversing the freeze at the next budget this autumn.
Responding, the Government said it “recognises” the cost-of-living challenges that many graduates face and “understands concerns” about the impact of repayment terms.
“We keep all aspects of the student finance system under review,” it continued.
“Decisions on student loan repayment arrangements must be considered alongside wider fiscal priorities, the long-term sustainability of the higher education funding system, and the need to ensure value for money for taxpayers.
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“Any significant changes require careful consideration of their impacts on borrowers, taxpayers and public finances.
“The Government will continue to consider opportunities to ensure the fairness of the student finance system for borrowers, taxpayers and public finances.”
Chair of the Treasury Committee Dame Meg Hillier urged the Chancellor to use the upcoming budget to “give graduates some much-needed breathing space”.
The Government also agreed in its response to the committee that “more can be done” to support borrowers to understand the system, confirming new guidance will make “more prominent” the fact that regulations may be amended by Government and Parliament.
Sir Philip Augar, chairman of the Augar review into higher education funding, told the committee during its inquiry into student loans that successive governments made changes to the terms and conditions of some student loans in an “almost sneaky way”.
He told the cross-party group of MPs: “I don’t think there were bad actors in this, but it’s just each administration has made a small change.
“You add them all together, you compound them and you get the current distorted situation.”
Following the Government’s response to the committee report, Dame Meg said: “The commitment to right a historical wrong by updating the information so that prospective students are properly informed before taking out a massive loan is an important step forward.
“Unfortunately, though, it doesn’t help graduates who are angry that they didn’t receive the same service and are now facing punitive repayment terms on a loan which keeps growing. And they are juggling that stress with other huge pressures like trying to get on the housing ladder and save for a pension. I say it again, we must give young people a fair chance.
“Importantly, the Treasury has not ruled out reversing the threshold freeze but instead says the whole student finance system is under review.
“I recognise that finances are tight but I continue to urge the Chancellor to look at this again. I sincerely hope he will use his upcoming budget to give graduates some much-needed breathing space.”
Interest on plan 2 loans is charged at the rate of retail price index (RPI) inflation plus up to 3%, depending on how much a graduate earns.
The interest rate has been capped at 6% since the start of September to protect graduates from rising inflation during the war in Iran.
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Many graduates have found that despite years of repayments, their debt balance has either risen or stayed the same as a result of inflation.