Imagine taking out a student loan after being told repayments would be like a phone contract – around £30 a month – and then discovering your actual repayments are hundreds of pounds, your debt has grown despite regular payments, and the key terms have been changed after you signed up. That, according to a damning report from the Treasury Committee, is what has happened to millions of graduates in England and Wales. The committee has accused the government of mis-selling student loans, calling for an immediate reversal of a freeze on the repayment threshold that is set to make graduates worse off.
The loans in question are Plan 2 loans, taken out by students in England between September 2012 and July 2023, and still issued in Wales. Under Plan 2, graduates repay 9% of everything they earn above a certain threshold – currently £29,385. Last year, Chancellor Rachel Reeves announced that this threshold would be frozen at that level for three years from April 2027, rather than rising with inflation as originally promised. The freeze means that as graduates' salaries increase over time, they start repaying sooner and pay more each month – effectively a stealth tax.
“An explainer on the student loan mis-selling scandal and what the repayment threshold freeze means for graduates.”
The Treasury Committee report, published in July 2026, highlighted several actions it said amounted to mis-selling. First, government promotional materials compared student loan repayments to the cost of a monthly phone contract or cinema ticket – inaccurate for higher earners, who end up paying far more. Second, YouTube videos and slides did not disclose that the government could retrospectively change the terms of loans. Third, the Student Loans Company failed to make clear in the application process that the terms could be altered. Since student loans are "statutory in nature," they are not covered by consumer protection laws, but the committee said the government had a moral obligation to comply with basic fairness.
Why does this matter for UK readers? If you have a Plan 2 loan, you are directly affected. The threshold freeze means that from 2027, you will start repaying your loan at a lower income level than you might have expected, and your monthly repayments will be higher. This can affect your ability to get a mortgage, as lenders factor in these outgoings. The committee's report also noted that more than half of the 52,000 survey respondents said they had not understood the terms and conditions when taking out their loans. The mis-selling claim is significant because it challenges the very way the government has marketed and managed student debt for over a decade.
Q: What did the MPs find about mis-selling of student loans? MPs said comparing student loan repayments to phone contracts or cinema tickets amounted to mis-selling because it was inaccurate for higher earners. They also found that promotional materials and the loan application process did not clearly tell borrowers that the government could change the terms retrospectively, such as by freezing the repayment threshold.
Q: How does the repayment threshold freeze affect me? If you have a Plan 2 loan and earn above £29,385, the freeze means you will start repaying sooner and pay more as your salary rises with inflation while the threshold stays the same. For example, if your salary increases by 3% each year, your repayments will increase because more of your income falls above the frozen threshold.
Q: What changes is the committee calling for? The committee wants the government to reverse the freeze on the repayment threshold in the next Budget, estimated to cost £355 million by 2029-30. It also called for a broader reform of the student loan system, which it described as "unfair, unsustainable and in urgent need of reform."
The next Budget, expected in autumn 2026 under a Labour government led by Andy Burnham, will be the key moment. The Treasury has said it is "already taking decisive action" and will "continue to look for ways to make the system fairer." However, the committee's chair, Dame Meg Hillier, warned that "patience has run out" and the issue can no longer be ignored. With millions of graduates affected and a general election approaching, the pressure is on for reform.
