Student loans: Broken and unfair?

What is the inquiry?

The Treasury Select Committee are a cross-party committee of MPs who have oversight of the public finances. They have just published their recommendations from one of the biggest inquiries into student loans in years, drawing on more than 52,000 responses from people affected. Their verdict is clear: the system is broken, unfair, and in places was mis-sold. They have called on the Government to take urgent action to make the system fairer for graduates.

Here is a short summary of what they found and what they want changed.

You can find the full report here.

“Balancing the books today is important, but the government cannot always load additional fiscal burdens on to younger generations while hoping that young people will not notice.” (Page 1 of the report)

What they found:

Graduates now bear a bigger burden of university education. Plan 2 loans were recommended to split the cost of higher education roughly 50:50 between the state and the individual. The Committee heard that students today may now shoulder as much as 95% of the cost. That is not what Parliament intended.

Promises around the repayment thresholds were broken. Students were repeatedly told the repayment threshold would rise in line with earnings. Instead, successive governments froze it. By 2030, the threshold will have been frozen roughly half the number of years since its introduction. The Intergenerational Foundation estimates these changes have added around £14,360 to an average earner’s lifetime repayments.

The loans were effectively mis-sold – although the way the law was written meant that student loans cannot legally be mis-sold. Official promotional materials compared student loans to a £15-a-month phone contract and never made clear that the government can change the terms after a loan is taken out. The Committee concludes this amounted to mis-selling, and one witness compared it to the PPI and car finance scandals.

“The government has exempted its student loan policies from consumer protection laws and cannot be held liable in law for mis-selling. No government should ever have taken advantage of this exemption by pursuing lending practices that cause consumer detriment.” (Page 1)

What they recommend:

Reverse the threshold freeze from 2027-2030 announced in the last Autumn Budget. The Committee calls this a moral obligation and notes it would cost only around £355 million a year – only around 1% of the savings announced in the last Budget.

Return to a 50:50 split between the state and the individual for higher education funding over the long term.

Scrap the discredited RPI measure and use CPI to calculate interest instead. This is something that the Treasury Select Committee recommended 8 years ago and it still has not been implemented.

Make future loans proper contracts, so terms cannot be changed on borrowers without compensation.

Redesign annual statements to show how much of a loan is likely to be written off, so people do not overpay needlessly.

What are we campaigning for?

Rethink Repayment is a grassroots, graduate-led organisation campaigning for a fairer student loan system. We believe that the current system is broken and that it needs urgent reform so that young people can properly invest in their futures – something which many millions feel they are not currently able to do.

We are calling on the Government to make three key changes to the repayment terms:

1. To re-instate the Plan 2 repayment threshold to the level that it would have been had it risen each year with average earnings (as people were told would happen when they took out the loan). A higher repayment threshold means people keep more of their hard-earned money.

2. To cap interest on student loans at CPI inflation.

3. To reduce the repayment rate from 9% to 5% (this is the % of your income above the threshold that goes towards your student loan).

How can you support the campaign?

1. Follow Ollie on Instagram: @rethinkrepayment (https://www.instagram.com/rethinkrepayment/)

2. Ask your MP to sign our cross-party letter calling for a fairer student loan system. You can find our quick tool to email them here (it takes less than a minute).