UK MPs urge reversal of student loan repayment threshold freeze

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MPs urge loan threshold action

Highlights

The Treasury select committee urges ministers to reverse the freeze on the £29,385 Plan 2 loan repayment threshold, citing system unfairness and broken trust.
Reversing the freeze would create a £355 million hit to Chancellor Rachel Reeves' £23.6 billion fiscal headroom in 2029-30, but the government estimates over £5 billion in extra borrowing.
The Department for Education and fiscal analysts warn that undoing the policy would reverse a £5.9 billion capital saving and require a one-off £5.6 billion revaluation of the student loan book in 2026-27 or 2027-28.

Committee report raises fiscal and consumer concerns

As reported by Financial Times, citing the Treasury select committee, MPs are urging ministers to reverse the decision to freeze the salary threshold at which graduates on Plan 2 loans begin repaying 9 per cent of their income, currently set at £29,385.

In a report published on Tuesday, the committee says the move is needed to repair trust in a system it describes as unfair and broken. Dame Meg Hillier, the Labour chair of the committee, says ministers need to address damage to confidence among graduates and those overseeing student loans.

The committee also says promotional material for student finance made inaccurate cost comparisons that amounted to mis-selling and failed to warn young people that terms and conditions could be changed retrospectively. MPs say ministers are not meeting standards that would be expected of commercial lenders.

A dispute has also opened over the cost of unwinding the freeze. The committee says the change would create a £355 million hit in 2029-30 to Chancellor Rachel Reeves' £23.6 billion fiscal headroom, while the government says reversing the policy would mean more than £5 billion of extra borrowing.

Budget pressure grows over impact on younger graduates

Anger among graduates has been building over the Plan 2 loan system, which covers those who started university between 2012 and 2022. The committee warns against placing additional fiscal burdens on younger generations in the expectation that they will go unnoticed, adding that the system is imposing stress on people in their twenties and thirties in ways that did not affect earlier cohorts.

Hillier says ministers openly accept the system is broken and unfair but have not treated reform as a priority. She argues that reversing last year's threshold freeze is a modest step that would not consume vast resources, even as the government balances other spending pressures.

That view is contested by education officials and fiscal analysts. The Department for Education says the committee's estimate ignores a £5.9 billion one-off capital saving that would be undone by the change, while Kate Ogden of the Institute for Fiscal Studies says the reversal would cut graduate repayments by about £260 a year but also produce a substantial one-off public finance cost through revaluation of the student loan book, around £5.6 billion in 2026-27 or 2027-28.

Burnham, who is poised to take over as prime minister this month, says he wants to focus on technical education. The Department for Education says it will continue looking for ways to make the system fairer for students, graduates and taxpayers in a financially sustainable way, while working with the Student Loans Company to improve the clarity and accuracy of information given to students.

Changes to the U.S. SAVE student loan repayment program have begun rolling out, with servicers sending notices that require borrowers to leave the plan within 90 days following a court order ending it. Our publication previously noted that millions of borrowers could be shifted automatically into Standard or the new Tiered Standard Plan if they don’t choose an alternative in time, potentially changing monthly payments and repayment timelines.

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