PARLIAMENTARY DEBATE
Student Loans - 15 September 2026 (Commons/Commons Chamber)

We now come to the Select Committee statement on behalf of the Treasury Committee. The Chair of the Treasury Committee, the hon. Member for Hackney South and Shoreditch (Dame Meg Hillier), will speak for up to 10 minutes, during which time no interventions may be taken. At the conclusion of her statement, I will call Members to ask questions on the subject of the statement. These should be brief questions and not full speeches. I emphasise that questions should be directed to the Select Committee Chair and not the relevant Government Minister. Those on the Front Bench may take part in questioning.

I am pleased to rise to make a statement on the Government’s response to the Treasury Committee’s report on the student loans system.

It is worth laying out what our inquiry did. We took evidence from a number of people, including students and graduate representatives at the National Union of Students; Rethink Repayment, which was set up by one of my constituents on behalf of affected graduates; and the union Prospect. We also took evidence from the Institute for Fiscal Studies, Universities UK and Sir Philip Augar, who led the Augar review of post-16 education, and who knows more about higher education finance than most of us in the Chamber.

We hosted an online survey that received 52,000 responses from individuals, mostly those affected by plan 2 student loans. That was the second biggest response to any Select Committee inquiry ever. We made numerous written requests to the Department for Education for all the publicity material that the Department had produced about student loans from the past 15 years. This unearthed over 200 pages of slides and videos of student presentations.

We found in our inquiry that for many years, students were sold an idea that the repayment threshold for student loans would rise with inflation or earnings. This commitment—indeed, a promise—has been repeatedly broken, and graduates are now having to pay back far more over their lifetime as a result. That has happened under Governments of different colours. That promise and the promotional materials created by the DFE downplayed the monthly repayments that most students would have to make once they graduated. In the Committee’s view, this amounted to mis-selling, but the Government have exempted themselves from consumer protection law, so students have no avenue for seeking redress. For most graduates, their student loan repayments will now act as a career-long additional income tax of 9% on top of their marginal rate of tax. The knock-on impact of this additional rate of tax is that it is harming the ability of graduates to get on to the housing ladder, and that in turn affects their ability to start a family and save into a pension.

In the run-up to our inquiry, we heard interesting comments from several then Cabinet Ministers, who described the student loan system as “broken” and “unfair”. The Secretary of State for Education called the student loan system “endless” and “unfair” as recently as February. The Government’s own submission to the inquiry described the student loan system as “broken and unfair”.

The Committee have made a number of recommendations. We heard in evidence from Sir Philip Augar that when he reviewed the system, he recommended that the split between student and taxpayer should be around 50%. Universities UK reminded us of the benefits of graduates to our wider society. For example, if we have an accident, we rely on people who have trained in medicine—paramedics, doctors and so on—to help. The Committee concluded that the split between the individual and the state should be 50%, but in their response, the Government said that their contribution is already in the region of 35% to 40% and that is enough. I can tell the Government that it does not feel like that to many of my constituents, and the constituents of my fellow Committee members. They can read the Government’s own forecasts of repayments, which that show that starting in 2024-25, the average undergraduate will be paying back their loan for 31 years, and the average amount that they will pay back will be well over £30,000. It is even worse for graduates in the top 30% of earnings: the Government forecast that they will pay back more than they borrowed.

Members of the Committee understand that a national conversation needs to be had about how much society should contribute towards higher education, but our cross-party Committee, made up of representatives from the three main parties of the House, concluded that in the longer term, a 50:50 split should be the ambition, so that we can invest in the young people of today and our country.

One of the most shocking elements of our inquiry was the evidence provided by the Department for Education about the advice given to students when they took out loans. As a result of seeing that, we recommended that much better information be provided to make it clear to students applying for a loan that the terms and conditions of the loan can change, even after it has been taken out. I am pleased about the Government’s response on this point.

We said that

“more can be done to support borrowers to understand the student finance system and that all information provided to borrowers should be fair, clear, unambiguous and as easy to understand as possible”.

The Government have committed to a “transformation programme” that will

“review the pre-application process to produce clear, relatable and trusted guidance that supports better decision making and financial planning. This will include making it more prominent that student finance is governed by legislation and that regulations may be amended by Government and Parliament.”

These changes are well overdue. It is shameful that multiple Governments have not done that when it is very young people, mostly under the age of 18, who have been taking out loans.

The Committee also recommended that student loans promotional materials should be brought in line with the requirements of the Financial Conduct Authority’s consumer duty. The Government have declined that in their response to our report, based on the fact that these are not commercial loans. However, the Government are the monopoly provider of student loans—students cannot go elsewhere for a loan of this sort. It is therefore beholden on the Government to treat student loans fairly, as the competitive forces that might maintain a higher standard of customer service in banking and other areas do not apply to student loans. We would like the Government to explain which elements of the Financial Conduct Authority’s consumer duty they feel that they cannot comply with, given they do not want to commit to doing so at this stage.

We are disappointed on another point. In 2018, the predecessor Committee concluded that the use of the retail prices index should end and we should move to the consumer prices index, which is a lower level of inflation. Back in 2018, the Government responded that the flaws in the RPI measure of inflation are well understood, but they did not make a change. Over that time, Governments of different colours have sat passively by, and today the Government say that they will not make that change because it is coming in 2030 anyway. However, that means that students will have been charged at a higher interest rate for a longer period and we are disappointed by that response.

One of the key things that we looked at was the change announced in last year’s Budget to freeze the threshold at which payments have to be made by students for two years from April next year. This seems to be changing the rules again when students are already experiencing pain. This is a cohort of students who already face huge pressures on housing costs and paying into pensions. They are the generation who are helping to grow Britain’s economy and working to deliver essential jobs in that economy. They are the generation who will pay for the NHS and the ageing population, and they will have the children who will be our future workers. Let us not forget that the birth rate has fallen every year in the past three years, down to 1.41%, so not investing in this generation is a real issue.

It is a breach of trust to change that threshold and make students stick at a frozen level. This has been done by previous Governments, but there is an opportunity here. The Government have not absolutely said that they will not review the threshold, so there is a glimmer of hope. As they talk to Treasury colleagues ahead of the Budget, I urge Ministers to take the opportunity of a change of Prime Minister and a change of Government to show that we want to invest in his generation. It is a matter of intergenerational fairness.

This cohort is squeezed. The Government need to consider the fairness of the student finance system for borrowers, taxpayers and the public finances, but it is important to note that the rules have been changed repeatedly for this cohort, particularly those on the punitive plan 2 system.

We want to honour the promises that the Government made to student loan holders. One of the easiest ways to do that is to not bring in a threshold freeze next April. That is in the hands of the Chancellor of the Exchequer at the Budget. I hope that he and his colleagues are listening to this debate and to the 52,000 people who responded to our inquiry, including the many young people in their 20s and 30s who are suffering the additional burden of the punitive plan 2 loan system, and that they will reconsider freezing the threshold at the Budget in October.

Order. We have about 10 minutes for questions and answers, so they must be brief.

I thank the hon. Lady for her clear summation of the Committee’s report. I want to press her on the repayment threshold. She says that in the Government’s response, they have not ruled out reviewing it, but given the relatively modest amount of money and the significant number of young people who would be positively affected, does she think that this should be one of the top priorities for the new Chancellor on 28 October?

I absolutely think it should be a high priority, because this generation is being so severely squeezed. The Government’s response to the Committee said:

“The Government recognises the cost-of-living challenges faced by many graduates, including those with Plan 2 student loans, and understands concerns about the impact of repayment terms on borrowers.”

The response says further that the Government

“keep all aspects of the student finance system under review.”

This is one change that is very simple to make and relatively cheap. I recognise that the Chancellor has had many challenges even since we put out our report, but this is an achievable change that could be done quickly and would make a big difference to this cohort.

One of the themes that comes through quite clearly in the report is the complexity of the student finance system and the difficulty that students have in understanding what they will actually pay—that is mis-selling, as I think my hon. Friend described it. Given that the Government appear to accept that the terms are confusing, is it fair that they continue to penalise borrowers who were potentially misled?

One good thing is that the Government have recognised that problem in their response to us. We are dealing with mostly teenagers under the age of 18. Sometimes those going to university for the first time do not have other people around them who can advise them about the impact of a loan, and many have no choice and have to take out a loan. The cohort now paying back under plan 2 is being further penalised by the threshold change, so more and more is being layered on that particular cohort. There needs to be more fairness in the system.

I speak as the mother of three students, one of whom has just graduated. Two of them have a plan 2 loan, and one has a plan 5 loan. They and I were unaware that they are not allowed to start repaying their debt until they graduate, yet the interest starts from the very first day that they take the loan, which can be a gap of three or four years or, as was suggested earlier, even six or seven years. That adds between £5,000 and £8,000 to their borrowing. Did the Committee look at that? Has it made any recommendations on that specific issue?

The Committee certainly received some evidence on that issue. There is a logic to not paying back the loan until that point, because students are mostly not working, so there would be a real challenge in paying it back while someone is an undergraduate or graduate student. The hon. Lady rightly highlights that that has caught a lot of people unawares, as they were not aware of how much it ratchets up. There is layer upon layer of complexity, and the fact is that parents do not fully understand the impact.

The hon. Lady says that she has children on plan 2 and plan 5 loans. The bigger picture, which I have looked at over many years, is that Governments of different colours keep changing the student loan package, and each package is more complicated than the last. Plan 5 is paid back over 40 years, but plan 2 is paid back over 30 years. Try keeping up with that! It is very confusing. The Government’s commitment to greater transparency is welcome, but it is only a first step.

On 27 March 2026, the Minister for Skills wrote to my hon. Friend the Member for Brentford and Isleworth (Ruth Cadbury) confirming that the Department for Education would release an equality impact assessment on student loan lifetime repayments and other borrower impacts for the plan 2 repayment threshold. Does the Chair of the Treasury Committee agree it is high time that the equality impact assessment was published by the Department?

In that simple question, my hon. Friend raises a raft of issues. For most students, the only way that they can go to university is by getting a loan. There has been a big drive to get people to go to university who would not have been able to do so before, partly because they may be from poorer backgrounds. This Government have added in extra support through the maintenance grant and so on, but there are still huge costs on young people. It is really important that in making decisions, especially as they have committed to reviewing the student loans system, the Government really understand the impact on different cohorts.

I thank my hon. Friend for her statement. I was glad to be part of the Committee, which looked at ways in which we could start to make the student finance system fairer. On the issue of whether we should reverse the threshold repayment freeze, we looked at a number of ways in which we could change the financing system to make it fairer—for instance, by freezing or even cutting the interest rate cap—and reversing the threshold repayment freeze was the best way to get help to the great majority of those repaying loans, no matter what their income. Does my hon. Friend agree?

As my hon. Friend said, we looked at a number of ways of changing things. Once somebody has a plan that has been set up, it is very difficult to unpick different parts of it, but the threshold freeze was added on top of the plan 2 system. That is why it seems particularly invidious. There is an opportunity here—a simple lever that the Government can pull—because the freeze has not yet been implemented. If the Chancellor is looking for a quick win in the Budget, that is one of the easiest things to deliver, without causing more challenging ramifications. If he pulls that lever, it is done, and the biggest number of students would benefit from that.

I thank my hon. Friend for her Committee’s excellent work on the important issue of student loans and for the good communication that she maintained with my Select Committee during her inquiry. The Education Committee concluded earlier this year that there is a genuine crisis in the financial sustainability of our universities as a result of many different pressures bearing down on them. Does she agree that if the Government do not bring forward additional measures to improve the long-term affordability of student loans, as she recommends, the risk is that more and more young people will decide not to pursue a university education? That would not only mean that they miss out on the potentially transformative impacts of such an education, but serve further to undermine the financial viability of our universities.

I thank my hon. Friend for the excellent work that she and her Committee do. We know that there is a crisis in the higher education system, but there is also a huge challenge for the graduates paying off these loans. It is a multifaceted picture, so I am pleased that the Government are looking at reviewing it, but people have just started plan 5 repayments, and a review that might see any changes is still a long way off.

We need to have the national conversation that I mentioned about a 50:50 balance. Society benefits from most graduates. They are not just taking; they are actually giving back, and it is really important that we recognise that in our national conversation. Frankly, universities are really struggling in part because of the way in which fees are structured, meaning that they are not getting enough money, but they are still very expensive for students, so nobody is winning in this situation.

One of my constituents has been in touch. He is a neonatal nutritionist and is paying a marginal tax rate on his loan of 57%. Does the Chair of the Treasury Committee agree that that is not an acceptable outcome socially and that we must have change?

When I looked at this issue in previous roles, before I was on the Treasury Committee, I found that one of the challenges is that the loan system is set up with lots of box-ticking and spreadsheets happening in Government Departments in Whitehall—a very long way from a 17-year-old who takes out a loan and starts paying it back after they graduate. We need to have them at the heart of the design. There will always be a discussion in government about where money is best spent and how much things cost in the short, medium and long term, but we need to ensure that the graduates paying back their loans are at the heart of that discussion, alongside the impact on further education institutions.

I thank my hon. Friend for her excellent work and that of her Committee. We want our young people to have confidence that their Government will stick to their promises. Does she agree that the approach to student loans from successive Governments has dented that trust and that Government colleagues should reflect on that?

My hon. Friend says it better than I could. There is a trust relationship, and in the case of student loans, students have nowhere else to go for that money. They signed up on certain terms, and those terms have been changed by successive Governments, and the latest threshold freeze is just another one of those breaches of trust between the Government and those who trust them in taking out a loan.

I thank the Committee for its work and for the report. I completely agree with the Chair’s presentation of the level of mistrust among graduates and learners when it comes to the broken system. Does she agree with me that this is not simply a communications issue? It is not about telling people more clearly how bad a deal they have. Fundamentally, this is a broken system—a bad deal that is having massive intergenerational impacts. Does she agree that we need a full and thorough review of the student finance and loans system?

It is not only my hon. Friend, I and the Committee who agree on that—it is the Government too. The Secretary of State for Education herself has said there are problems and previous Ministers have called it a broken system. There is a long way to move from a broken system to one that is fair, and the focus of our recommendations is on those who are currently paying back a loan. It is difficult to right all the wrongs for those people, but we think pulling back on the threshold freeze would be an important step for them. I absolutely agree that there needs to be proper long-term thinking about how we fund education and how the loans book is structured, and we need to provide information to people. As it is now, the system is not working.