MPs accuse student loan system of “mis-selling” generation of graduates

MPs from the Treasury Committee have released a new report which accuses the government of mis-selling student loans, pointing out that comparisons to mobile phone bills or cinema tickets were not reflective of the true cost of repayments.

The MPs also want Chancellor Rachel Reeves to scrap plans to freeze the repayment threshold for people on the expensive Plan 2 loans. As things stand, it’ll stay at £29,385 from 2027 to 2030, instead of going up with inflation, meaning many graduates will end up paying back more.

This choice to freeze – which will increase students’ repayments year on year if their wages rise – comes alongside a cost-of-living crisis brought on by massive inequality in wealth and profiteers whacking up costs for consumers.

As a result, students are left facing back-breaking costs as they start their professional journeys – a struggle not faced by their elders who received state-funding higher education. This has led to renewed calls to scrap student loans entirely from MPs and public figures.

Student loan promotion in England & Wales amounted to mis-selling, MPs say.

Students not clearly told that loan terms could change retrospectively.

Govt froze repayment threshold, forcing graduates to pay more.

Abolish Uni tuition fees, as in Scotland.https://t.co/D9GbcLFsge

— Prem Sikka (@premnsikka) July 7, 2026

Report: “Student loans: Broken and Unfair?”

The report from the Treasury Committee is titled ‘Student loans: Broken and Unfair?’ which, as Martin Lewis has also pointed out, doesn’t require a question mark. Many have called out the student loan system as being broken, with Lewis saying:

the whole system, including the way it is communicated, needs a fundamental reset.

The findings of the report are damning for Starmer’s Labour government and its move to freeze the level at which students start repaying the 9% ‘student tax’. The committee found “a moral obligation” to reverse its upcoming changes, concluding that successive governments have used the ‘politically convenient option’ of stacking financial burdens on the younger generations in the hopes that they would not notice until it was too late.

Furthermore, the report notes that, although the government promised to uprate the £21,000 repayment threshold with inflation when it introduced Plan 2 student loans in 2010, it instead froze the threshold twice: between 2016 and 2018, and again from 2021 to 2025. Reeves’ decision to freeze from April 2027 is the third time that governments have chosen to disadvantage younger generations compared to their elders.

Loans mis-sold to students

It gets even worse. In a rare move by MPs to speak truth to power and stick up for ordinary people, they also found three instances that qualify as mis-selling due to the actions of the Department of Education (DfE) and the Student Loans Company (SLC):

• The DfE put out YouTube videos and slides, which did not make clear to prospective students that the government could change the terms and conditions retrospectively. This arguably leaves students vulnerable to unexpected increases in costs.
• The DfE promoted the Plan 2 loan repayments as being similar to the cost of a mobile phone or cinema tickets. This is wildly misleading, as an average full-time salary of £38k means repayments stand at approximately £70 per month.
• The report also found that the SLC didn’t make it clear enough that the rules could change after students signed up, affecting how much they’d eventually repay. It says you’d expect that kind of warning in any commercial contract, but the SLC failed to make sure students really understood what they were agreeing to.

Lewis: “immoral and a breach of natural justice”

Martin Lewis, the ‘Money Saving Expert’, has spoken out against student loans in the past, and condemned Reeves’ decision to freeze the threshold once again at the time of the budget.

Calling the planned freeze “immoral and a breach of natural justice”, Lewis posted his take on the new report from the Treasury Committee on X:

STUDENT LOAN NEWS: The Treasury Committee of MPs has put out its report into student loans. Here's my view:-

I’ve long condemned the Chancellor’s planned freeze of the student loan repayment threshold next April as immoral and a breach of natural justice. So today is an…

— Martin Lewis (@MartinSLewis) July 7, 2026

His post went on to say:

So today is an important moment, as the cross-party Treasury Committee of MPs echoes this language in calling out a “moral obligation” for this to be reversed.

Changing terms for future students is a political choice, but that’s not what is planned next year. Freezing the threshold on existing Plan 2 loans effectively increases the amount those with those loans must repay each year. It is a retrospective, one-sided contractual change that would not be allowed in almost any other circumstance or sector. Worse, those hit often signed these contracts while just 18, with little or no explanation of what they were getting into.

This has to stop, and never be allowed again. That’s why one of the Committee’s most important proposals is that the Government should effectively be bound by the same Consumer Duty for student loans as a commercial lender, backed by proper fairness rules. Though it is only [talking] about student loan promotions, I think it should be for all student loan behaviour.

I have been pushing for this for over a decade. In 2016 we even got Wes Streeting, then a new MP, to propose FCA regulation of student loans and place restrictions on negative changes as a parliamentary amendment. It was rejected. Had that protection been in place, it could have stopped successive governments tinkering with the system, resulting in a horrific degradation of the original terms.

I hope this report, feeding into a new administration, means there is now a realistic chance of stopping the planned freeze and any future freezes.

Yet let’s be clear: that alone will not fix the Plan 2 student loan crisis – it’ll just stop it getting even worse. The report is titled “Student loans: broken and unfair?”. There is no need for the question mark. The repayment threshold should be many thousands of pounds higher, interest should be reduced, maintenance thresholds need uprating, and the whole system, including the way it is communicated, needs a fundamental reset.

Former Labour but now Independent MP Diane Abbott went even further and made a call to scrap the “unfair” student loan system entirely:

Student loands should be scrapped. They are completely unfair. They are a tax on learning, not earnings. They have exorbitant interest rates and are blockage in the labour market.

Student loans in England amounted to mis-selling, MPs sayhttps://t.co/csG91WhV3Q

— Diane Abbott (@HackneyAbbott) July 7, 2026

No humility from the government or SLC

According to the BBC, a spokesperson for the SLC refrained from anything remotely resembling an apology or show of humility, saying they:

recognise the importance of ensuring that students and borrowers across all repayment plans have access to clear, accurate and timely information about student finance.

The government also showed a similar lack of consideration for its back-breaking impact on the finances of younger people, saying that ministers were “already taking decisive action” and that they would:

continue to look for ways to make the system fairer for students, graduates and taxpayers in a financially sustainable way.

However, it is hard to see what action they are referring to. The only commitment made so far, relating to these loans, is to freeze the threshold, which will simply increase the cost on students year on year.

Therefore, it is hard to see any likelihood that the government will take any action to redress the harms inflicted on young people from the exploitative student loans system.

Featured image via the Canary