The UK Government has stopped short of ruling out a reversal of the planned freeze on the income threshold at which university graduates begin repaying their student loans.
The Treasury said the entire student finance system remains under review, leaving open the possibility that ministers could reconsider the repayment threshold ahead of the autumn Budget.
The issue centres on Plan 2 student loans issued in England between September 1, 2012, and July 31, 2023. Under the current arrangement, the earnings threshold for repayments is due to remain frozen for three years from 2027.
The decision means graduates could pay more towards their loans than they would have if the threshold had continued rising with inflation.
When Plan 2 loans were introduced, the repayment threshold was designed to increase annually in line with inflation. However, successive governments have frozen the threshold several times since 2016.
The Treasury Committee had urged the Government to reverse the latest freeze in a report published in July, warning about the financial pressure the policy could place on graduates.
Responding to the committee, the Government acknowledged concerns about the repayment system and the wider cost-of-living pressures facing borrowers.
“We keep all aspects of the student finance system under review,” it stated.
“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.”
It added, “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.”
The Treasury Committee chair, Dame Meg Hillier, urged the Chancellor to reconsider the policy and use the forthcoming Budget to ease the financial burden on graduates.
The Government also accepted that “more can be done” to help borrowers and agreed to update official guidance to make it clearer that Parliament can change student loan regulations in the future.
The clarification follows criticism from the Treasury Committee that previous information given to students about their loans could have amounted to mis-selling.
Sir Philip Augar, who chaired the review into higher education funding, told MPs that changes to student loan conditions had been introduced gradually by successive administrations.
“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.”
Hillier welcomed the Government’s commitment to improve the information provided to prospective students but said the changes would not immediately help graduates already affected by the existing repayment terms.
“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.”
She added, “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.”
Plan 2 loans attract interest linked to the Retail Price Index inflation measure, with an additional rate of up to three per cent depending on a graduate’s earnings.
The interest rate has been capped at six per cent since September as protection for borrowers against inflation associated with the war in Iran.
The repayment system has continued to generate concern among graduates, with some saying their balances have failed to fall despite years of repayments. In some cases, inflation and accumulated interest have caused outstanding debts to remain broadly unchanged or increase.
