Student Loans Inquiry to Examine Whether System is ‘Unfair’

MPs have launched an inquiry into the student loan system after mounting concerns about repayment terms and growing frustration among graduates.

The Treasury Committee will examine whether recent policy decisions, including a freeze on the repayment threshold for many graduates in England, are fair.

The investigation will also consider whether repayment conditions remain reasonable when viewed alongside the broader taxation faced by graduates, such as income tax.

According to the Department for Education said the changes were designed to “protect taxpayers and students”.

The inquiry will assess all student loan plans. However, recent controversy has focused on Plan 2 loans, which were issued in England between September 2012 and July 2023 and are still used in Wales.

Under Plan 2, graduates repay 9% of earnings above the repayment threshold. In November’s Budget, Chancellor Rachel Reeves confirmed the threshold would be frozen at £29,385 between 2027 and 2030 rather than rising with inflation.

As a result, graduates will begin repaying sooner and those earning above the threshold will have a larger share of their salary subject to student loan deductions.

Campaigners have urged the government to reverse the freeze. They have also called for a lower repayment rate and reduced interest charges.

Currently, interest on these loans is linked to the Retail Prices Index (RPI) measure of inflation, with an additional charge of up to 3% depending on earnings.

Dame Meg Hillier, chair of the Treasury Committee, said the student loan system had helped widen access to higher education but raised concerns about whether policy changes had unfairly affected graduates.

She said: “Upward interest rates and sometimes particularly high marginal tax rates have clearly led to widespread dissatisfaction among graduates who may not have fully understood their repayment terms and the possibility they could change.”

Dame Meg Hillier added that the inquiry would consider whether “the goalposts [have] been moved in a way which is unfair to graduates”.

The investigation follows renewed scrutiny of how student loans were originally presented to young people.

The BBC previously reported that government presentations to teenagers a decade ago compared student loan repayments to a £30-a-month phone contract. Presenters were also asked not to use the word “debt”.

Former Liberal Democrat leader Sir Nick Clegg criticised the current tuition fee structure, saying it is a “mess”.

The Department for Education said it had inherited a student loan framework created by the previous government.

Officials argued the repayment threshold freezes were intended to balance the interests of graduates and taxpayers.

A spokesperson said the system “protects lower-earning graduates” through income-linked repayments and loan balances that are written off after a set period.

During a parliamentary appearance, Chancellor Rachel Reeves acknowledged wider structural problems within the system.

She told MPs: “I do recognise that we inherited a broken system when it comes to student finance, as we inherited a broken NHS, a prison system and much more.”

Student groups and campaign organisations have welcomed the inquiry and called for meaningful reform.

The National Union of Students said it was “ready to take this opportunity to work together to fix student loans”.

Meanwhile, the Rethink Repayment group said the investigation could highlight the experiences of graduates struggling with the current model.

A spokesperson said the inquiry would hear from a “huge number of our campaign’s supporters who are being held back by these punitive student loans”.

The Treasury Committee is now inviting people aged 16 and over to share their experiences through an online survey.

Although the inquiry will focus on the student loan system in England, submissions from other parts of the UK are also being welcomed.