The government has promised to give university applicants in England more straightforward information about student loans before they borrow money. Ministers have stated that they will explain that repayment rules can be changed by governments and that various career choices can influence how much borrowers end up repaying.
MPs found that how loans were presented to teenagers amounted to mis-selling, and that has prompted a change. The BBC uncovered that the Department for Education (DfE) likened repayments to £30-a-month phone contracts.
How Plan 2 loans work
Between September 2012 and July 2023, plan 2 loans were issued in England, and they are still being issued in Wales today. Borrowers repay them at a rate of 9% of whatever they earn above a repayment threshold, which goes up each year with inflation. The loans disappear from a borrower’s record after 30 years.
People pushing for change are asking for two things: a smaller rate charged on borrowed money and a smaller amount taken from repayments. They also want the government to undo a choice made last year that stopped the point where repayments begin from going up with rising prices. That point was set at £29,385 in England, and the decision tied it there for three years instead of letting it rise with inflation. Keeping that point fixed means people who borrowed money start paying back sooner than they otherwise would have, and once they start, they end up paying more than they would have if the threshold had risen along with prices.
The government’s response
MPs put forward a set of proposals following their inquiry, and ministers accepted some of them while rejecting others. The ministers declined to state whether they would lift the freeze on the repayment threshold.
The Treasury and the Department for Education did not state whether ministers would lift the freeze on the threshold in their reply, but they said: “We keep all aspects of the student finance system under review.”
The government rejected recommendations to:
- Split the cost of university evenly between the student and the government
- Stop using RPI to calculate interest rates
- Ensure promotional materials comply with the Financial Conduct Authority’s Consumer Duty, saying student loans were “very different to commercial loans”
The agreement included two separate provisions: it acknowledged “making it more prominent that… regulations may be amended by government and Parliament”, and it went on to state “more can be done to help student loan borrowers understand how their loan balance may change over the long term”.
The government proposed instead to “demonstrate how different life and career choices may affect repayment trajectories”, including salary progression, retraining, part-time work, and career breaks.
What the government refused
Campaigners and Dame Meg Hillier, who chairs the Treasury Committee, both came down hard on the government’s reply.
Nick Hillman, director of the Higher Education Policy Institute, who helped design the Plan 2 system, said the government had “absolutely rejected” most of what the Treasury Committee had recommended and its response would not meet the concerns of Plan 2 graduates.
Oliver Gardner, founder of the Rethink Repayment campaign, said the government’s response “does not go far enough” and he wanted to see “concrete action” in the autumn Budget.
The chancellor should undo the threshold freeze, Hillier argued, urging him to do so in this autumn’s Budget. She described making information clearer as “an important step”, though she also acknowledged it was “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”.
The history behind the freeze
In March, a BBC investigation found that as well as comparing monthly student loan repayments to phone contracts, the government told presenters to “avoid words [or] phrases like debt” during presentations in schools across England a decade ago.
More than 120 MPs and peers recently signed a letter coordinated by the campaign group Rethink Repayment calling for an “urgent review” of the system. One of the signatories, Liberal Democrat MP Tom Gordon, who is a Plan 2 borrower, is set to introduce a bill calling for a review in Parliament next week.
Lucy Powell, the Education Secretary, has said that the interest rate on Plan 2 loans stood at “egregious”, and that the matter sits at the top of her in-tray.
The Student Loans Company said it was working with the government to “provide clear, relatable and trusted guidance”.
What changes in the autumn
The government’s response comes ahead of the autumn Budget, where the chancellor will face pressure to reverse the threshold freeze. The government’s own response suggests it sees the issue as unresolved.
The government said “We keep all aspects of the student finance system under review,”.
The main obstacle is the government’s refusal to pledge to end the freeze. Advocates demand action, not greater transparency. The clarity the government has offered is genuine, but it relates to a separate issue — career options and changes in government rules — rather than the threshold freeze itself.
The administration claims its priority is for borrowers to grasp how the system works, without altering the underlying figures. That is a sensible objective, though it fails to respond to the frustration Hillier outlined.
The state of play
The government has promised to make information clearer before students take out loans, while rejecting most of the recommendations from MPs, including the demand to reverse the threshold freeze.
| Plan 2 loans | Government response |
|---|---|
| Issued in England Sept 2012–July 2023, still issued in Wales | Rejected demands to split costs evenly, stop using RPI, and comply with Consumer Duty |
| Repay at 9% of income over £29,385 threshold | Agreed to highlight that rules can change and that career choices affect repayments |
| Written off after 30 years | Freezing the threshold starts repayments sooner and raises monthly payments |
This reply offers a minor move forward, acknowledging that the system can be altered, yet it fails to address the current arrangement. The freeze on Plan 2 loans stays in effect, and the government has given no indication that it plans to remove it.
The Budget for autumn stands as the trial. Should the chancellor act, the government’s reply will seem far-sighted. Should he fail to act, it will appear merely written on paper.
The government has already responded to the matter of clarity, though it has yet to address whether the threshold will increase once more.