MPs say 'Government has a moral duty to reverse next April's Plan 2 Student Loan repayment threshold freeze' – Martin Lewis says even then the student loan system will still be broken

In its report titled 'Student loans: Broken and unfair?', the Treasury Committee called for the Government to overturn its planned repayment freeze for Plan 2 Student Loans, which affects all English and Welsh students who started university between 2012 and 2023 (and Welsh students since then too).

We've rounded up the key points from the report below (you can read Martin Lewis & MSE's full submission of evidence on the Parliament website).

Martin Lewis: 'The freeze on repayments is a breach of natural justice'

The report's key conclusions and recommendations

The Treasury Committee found that the student loans system is "complex", "unfair" and "broken". It made a series of recommendations aimed at restoring trust, improving protections for borrowers and changing how loans are explained.

1. The cost of university should be split "around 50:50" between the individual and the state

Kicking off its report, the Committee said student loan terms can't be looked at in isolation, because they sit within the wider question of who pays for higher education: graduates or the state. It noted that, while the Government has claimed its subsidy is "in the region of 30% to 40%", evidence seen by the Committee suggests some students graduating today could end up contributing as much as 95% of the cost.

It said this was not what the Government or Parliament intended when Plan 2 loans were introduced. The Committee said society benefits from people going to university and, in the long term, the Government should return the balance between the individual and the state to around 50:50.

However, it added that "there may be valid arguments" about the exact split, "depending on the relative value of [different] courses to the state and the individual".

2. The student loans system is "unfair and broken"

Noting that the Government itself has described the student loans system as "unfair and broken", the Committee said it agreed. It added that the current system means most students never repay their loan in full, while creating "widespread dissatisfaction" among graduates.

It also warned that the system is "layering stress" on people in their 20s and 30s in a way that did not apply to previous generations. The Committee said that the government "cannot always choose the politically convenient option" of loading more financial pressure on to younger people "while hoping that young people will not notice the extra weight".

3. Student loan interest higher than inflation "seems unfair"

Considered in isolation, an interest rate much higher than inflation (the rate at which prices rise) "seems unfair", the Committee said – though it added that "there is no definitive measure of what a fair student loan interest rate should be".

The Committee was especially critical of the continued use of the Retail Prices Index (RPI) measure of inflation to calculate student loan interest. RPI has been widely criticised as flawed and usually gives a higher figure than the Consumer Prices Index (CPI), which is now the standard measure. The Committee repeated a previous recommendation that the Government should abandon RPI and use CPI instead.

In our evidence, we also said that student loan interest should be no higher than CPI. However, we argued that, unless there is unlimited funding to fix the problem, reducing the interest rate now may not be the most cost-effective use of any, much needed, additional funds to help those on Plan 2 (many of whom won't repay enough to clear all the interest added to their loan). A total repayment cap or a substantive increase in the repayment threshold need considering too, whether in isolation or all in combination.

4. The Government "must reverse" the repayment threshold freeze

"Students have a right to expect that the government will act as an exemplary lender employing the highest levels of consumer care and protection," the Committee said. By freezing the repayment threshold, "successive governments have undermined that expectation," it added.

When Plan 2 loans were introduced, the Government said the £21,000 threshold would rise each year in line with average earnings from 2016. But it was then frozen from 2016 to 2018 and again from 2021 to 2025. In the 2025 Autumn Budget, Chancellor Rachel Reeves announced it would be frozen again from 2027 for three years.

The Committee said the Government "must reverse" this latest freeze, describing the cost as a "modest fiscal reversal". It said the Government has a "moral obligation" to do so, both to maintain students' trust and to honour the terms under which the loans were sold. This echoes our evidence to the Committee, in which we said the freeze was a "breach of natural justice" because it retrospectively changed what borrowers had signed up to.

5. Some student loan promotions "amounted to mis-selling"

While the government cannot be held legally liable for mis-selling student loans, it should still comply with "basic fairness and common decency", the Committee argued.

It concluded that the way student loans have been promoted and communicated has been "deeply problematic", specifically calling out:

• YouTube videos and slides produced by the Department for Education, which didn't disclose that the government could vary the terms and conditions of loans retrospectively.

• Promotional materials from the Department for Education that compared the monthly cost of student loan repayments with the monthly cost of a mobile phone or cinema tickets – inaccurate for higher earners.

• The Student Loans Company's application process failing to "make it explicitly clear" that the government can retrospectively change the terms and conditions. This fact is disclosed in the guide to student loans but is not done with any additional emphasis, "as would be required were this to be a commercial contract".

6. Future promotions should comply with the financial regulator's Consumer Duty – and warn about the possibility of retrospective changes

The Committee said ALL Government student loan promotions should clearly state: "The future terms and conditions of your loan can be changed retrospectively by future governments." It said older wording stating that "all policies are kept under review" is not clear enough.

It also recommended that student loan promotional materials should be required to comply with the Consumer Duty rules set by regulator the Financial Conduct Authority. These rules require firms to ensure communications are clear, fair and not misleading.

7. Annual statements should show how much of your loan is "likely to be written off"

Most current student loan holders "will never pay off their loan", according to the Committee – meaning that, for many people, the system functions "like a 30- or 40-year supplementary income tax".

Despite this, many people see the outstanding loan balance as a "psychological burden", even where they may never repay the full amount, the Committee said. As a result, people may make voluntary repayments without understanding that some or all of their loan may eventually be written off – a risk that we had highlighted in our evidence.

The Committee therefore recommended that the Department for Education and Student Loans Company add wording to annual statements to give borrowers and idea of how much of their total loan is likely to be written off.