Britain’s student loan system is facing renewed scrutiny. A cross-party group of MPs says the government should reverse a controversial repayment threshold freeze, warning that millions of graduates are paying more than they were originally promised.
A cross-party committee of UK lawmakers has urged the government to scrap its planned three-year freeze on student loan repayment thresholds.
The recommendation comes from the Treasury Committee, which says the policy unfairly increases repayment costs for graduates with Plan 2 student loans. The committee has asked the next chancellor to reverse the measure in the next Budget. The government announced last year that the Plan 2 repayment threshold would remain frozen at £29,385 from April 2027 until 2030.
Graduates repay 9% of everything they earn above that threshold. A freeze means repayments rise over time as wages increase, even if the repayment threshold does not.
MPs argue that borrowers were originally told the threshold would rise with average earnings. The committee says changing that promise after students had already taken out loans undermines trust in the system. It described the policy as unfair and called on ministers to restore the original arrangement.
Committee chair Meg Hillier said the government has a “moral obligation” to honour the commitments made to graduates.
The report also criticised the way student loans have been presented over the years. MPs concluded that many students did not fully understand how the system worked before borrowing. More than 52,000 people contributed evidence during the inquiry.
The committee went further than the repayment threshold. It recommended replacing the Retail Prices Index (RPI) with the Consumer Prices Index (CPI) when calculating interest on Plan 2 loans. MPs believe that change would reduce long-term borrowing costs and make the system easier to justify.
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The government has not committed to reversing the freeze. Officials say they are reviewing the committee’s recommendations while trying to balance fairness for graduates with the cost to taxpayers. Previous estimates suggest reversing the policy would carry a significant cost for the public finances.
The debate shows a wider challenge facing higher education in the UK. University costs have risen sharply over the past decade, while many graduates continue repaying loans for decades after leaving university. Critics argue the current system has become too complex and too expensive for many borrowers.
The committee’s recommendations are not legally binding. They do, however, increase pressure on the government to rethink one of the most controversial parts of the student loan system.
The outcome could affect millions of current and future graduates. For many borrowers, the issue is no longer just about repaying a loan. It is about whether promises made before they enrolled at university will still be honoured years after graduation.
