Thousands tell MPs student loan terms are unfair and poorly understood

Thousands of graduates have told an official inquiry about negative experiences with student loans, highlighting what the chair of an MPs’ committee described as massive levels of “frustration and upset”.

More than 52,000 people responded to a call for evidence by the Commons Treasury select committee as part of its inquiry into student loans and the taxation of graduates, amid continuing controversy over the growing cost of degree-course debt.

Pressure has been building on the government in recent months to reform the student loans system. Some politicians and campaigners argue that the interest rates and loan terms are punitive and unfair.

The debate has focused on the millions of students from England and Wales who took out a “plan 2” loan. Many have money deducted from their wages each month to repay their debt, but the amount repaid is often overshadowed by the interest added each month, causing overall balances to rise.

The latest dispute was triggered by the chancellor’s decision to freeze the salary threshold for plan 2 loan repayments for three years. The threshold, above which graduates must repay 9% of their earnings, will remain at £29,385 until 2030.

MPs invited people to share their experiences and views on student debt. Some respondents described the interest rates as “extortionate” and “higher than my mortgage”, while others said they had been assured that repayment thresholds would rise with inflation.

One respondent said the repayments acted “like a tax on ambition”. Another said: “I was told it would be less than a phone bill and barely noticeable. I am now an adult paying back hundreds of pounds a month. It was a complete lie.”

Of the 49,357 respondents who had taken out student loans, 92% said the level of interest and the repayment terms were “not reasonable”, while 81% said the financial impact of repaying their loan, combined with the level of tax, was worse than they had expected.

More than half, 57%, said they had not understood the terms and conditions of their student loans before taking them out.

Meg Hillier, the chair of the Treasury committee, said: “The massive scale and strength of frustration and upset is powerful and, as MPs, we must listen.”

The decision to freeze the salary threshold for repayments has prompted accusations of “mis-selling”, because when plan 2 was announced by the coalition government in 2010, ministers said it would “be uprated annually in line with earnings”.

The Treasury committee also published official student loan promotional materials it had received from the Department for Education, some of which repeated the claim that the threshold would be “adjusted annually in line with average earnings”.

While many graduates now have three-figure sums deducted from their pay packets each month, official presentation slides dating from 2020 gave two examples involving repayments of £15 and £60 a month.

The slides also highlighted “other monthly costs for comparison”, including £10 for clubbing, £17 for “cinema/gigs” and £14 for a mobile phone contract.

In April, after the inquiry was launched, the government said it would cap the plan 2 loan interest rate at 6% from September in response to fears that the Iran war would push up inflation.

A government spokesperson said: “We inherited the current system and have taken steps to make it fairer, including raising the repayment threshold for the first time since 2021 and capping maximum interest rates this year to protect graduates from rising costs.”

They said the government had reintroduced targeted maintenance grants and added that the system “protects lower-earning graduates”, with repayments linked to income and any outstanding balance and interest written off at the end of the loan term.