UK MPs condemn student loan marketing as mis-selling

A UK parliamentary committee has concluded that comparing student loan repayments to mobile phone contracts "amounted to mis-selling" by the government. The Treasury Committee's report calls for a reversal of the decision to freeze the income threshold at which graduates begin repaying their loans.

Last year, Chancellor Rachel Reeves announced the repayment threshold for Plan 2 loans would be frozen at £29,385 between 2027 and 2030, rather than rising with inflation. Because graduates automatically pay 9% of their income above this level, freezing the threshold means inflation-driven salary increases translate directly into higher debt payments.

For European economies monitoring the UK’s experiment in marketised higher education, the findings highlight the risks of binding young professionals to opaque, variable-rate debt. When large portions of a graduate's income are diverted to service compounding debt, their capacity to participate in the housing market or drive consumer spending is constrained.

The psychological and financial toll of this system is evident in the experiences of borrowers. Laura-May Nardella, a 31-year-old Cambridge graduate working in HR, paid over £3,000 in 2025. "That isn't a phone bill. That's three brand new phones," she said.

Because her debt accrues 6.2% interest, her overall balance has grown despite her payments. She noted the debt limits her ability to save for retirement or plan for children, calling it "an unfair loan and an unfair burden to put on young people".

The committee noted a critical regulatory gap, as government student loans are exempt from standard consumer protection laws. However, MPs stated they expected the government "to comply with not only the law, but basic fairness and common decency". A government spokesperson said ministers were "already taking decisive action" and would "continue to look for ways to make the system fairer for students, graduates and taxpayers in a financially sustainable way".

The debate comes as the UK has already shifted its underlying model for new undergraduates. Plan 2 loans were replaced in 2023 by Plan 5 loans, which feature a lower £25,000 threshold and extend the write-off period from 30 to 40 years. The committee warned this effectively shifts the cost of higher education from the highest earners onto all borrowers.

Current students face a daunting outlook under the new structure. Emma Cook, a 20-year-old architecture student with £50,000 in debt, described the prospect of 40 years of repayments as "depressing". Facing a tough job market, she worried about interest accumulating if she cannot find work quickly.

Campaigners argue immediate intervention is necessary. Oliver Gardner, founder of Rethink Repayment, said the inquiry concluded "what we have known for years", adding: "The student loan system is unfair, unsustainable and in urgent need of reform."