The Government has been accused of behaving like a payday lender following its latest refusal to reverse its retrospective freeze on the threshold at which graduates begin to repay their student loans.

MoneySavingExpert.com founder Martin Lewis has hit out at yesterday's "tragic" decision to reject amendments to the Higher Education and Research Bill, which would've served to fully scrutinize the Government's manoeuvre to renege on a previous promise to increase the £21,000/year student loan repayment threshold every year to reflect earnings.

Martin has previously led calls for the Government to stop retrospective changes to the way in which English students who have started university since September 2012 repay their loans. It had been hoped that amendments to the bill, tabled by Labour MP Wes Streeting, may bring about a change of heart.

However, the amendments were rejected during a parliamentary debate, with Universities Minister Jo Johnson stating that "increasing the [repayment] threshold in line with earnings will cost over £6 billion over the course of this Parliament".

The Government's defence of its U-turn on student loan repayments has cut no ice with Martin, who argues that similar retrospective changes to a loan contract would not be allowed by the Financial Conduct Authority (FCA), if they'd been made by a commercial lender.

He says: "If you sign a contract, both sides should keep to it. If you advertise a loan, the lender should be held to the terms it was sold under. Thankfully in the UK we have laws and regulations to ensure this happens. With one exception – student loan contracts. 

"Last night's rejection of the amendments is tragic news. How can we tell young people to have faith in the system when changes can be made after the contract with the Government had been signed? No other lender would be allowed to do this.

"It feels like the Government is trying to play the types of tricks you'd expect from a payday lender. It had the opportunity to prevent this and turned it down. Many are already losing faith in the political process. This was a lost chance to uphold its reputation."

Check out our Student Loan Mythbusting Guide for full help on everything to do with student loans.

Martin Lewis
Get Our Free Money Tips Email!

What are the retrospective changes?

English students who have started university since September 2012 were previously told that the £21,000 threshold at which they start paying off their student loans would rise in line with average earnings from 2017.

However, in last year's Autumn Statement former Chancellor George Osborne performed a U-turn and announced that this repayment threshold would not increase.

Because the Government has gone back on its word and frozen the threshold, many students will pay back more.

For example, if you earn £24,000 and the threshold had increased to £24,000, you'd have repaid nothing. But with the threshold at £21,000, you repay £270 a year.

What would the rejected amendments have done?

To prevent the Government reneging on its previous promise, two amendments to the bill were tabled:

  • That an independent panel be set up to judge the fairness of any retrospective changes made to the repayments process.
  • That student loans come under scrutiny of the FCA, which would be able to look into complaints of unfairness.

How does the Government justify its decision?

According to the Government, there are terms and conditions written into student loans contracts that allow repayment agreements to be altered.

Have your say