The government knowingly mis-sold student loans to teenagers for years, a cross-party group of MPs has concluded in a damning new parliamentary report.
The Treasury Committee found that the Department for Education used promotional materials comparing monthly student loan repayments to everyday low-cost items, including a £14 mobile contract and a £17 cinema trip.
MPs branded this approach “deeply problematic,” arguing the materials failed to reflect the true compounding costs faced by higher earners after graduation.
Dame Meg Hillier, chair of the Treasury Committee, said: “You’ve got 17 and 18, in some places even 16 year-olds, who were told things that are actually not the case.”
Hillier added: “Although there was no reason for the government to abuse the exemption that it does have under the current system and treat people unfairly.”
Under the Plan 2 loan framework, students face a significant long-term financial burden combining compounding interest rates with a 30-year wipe-out period.
The committee also scrutinised the DfE’s failure to properly outline the impact student loan repayments can have on mortgage applications for graduates.
Respondents to the committee’s consultation claimed they were refused mortgage applications because of their loans, despite promotional materials reassuring them a loan “is very unlikely to impact materially” on their ability to secure one.
Hillier said: “I feel very strongly that we’re putting a lot of burdens on this generation, being told to go to university. Actually we need them to because we need them to get the skills and talents and jobs that help us all.”
She continued: “But then they’re in a housing market that’s challenging whether you privately rent or you want to buy, and both are out of reach for so many people.”
Hillier warned the situation is causing aftershocks to “household income,” pension savings, and declining birth rates as people struggle to meet daily costs.
“This is a generation we need to be investing in, they’re the future of our country, and yet they are layered and layered with burdens,” Hillier added.
A central concern raised by the committee is that unlike private lenders, the government is exempt from normal consumer protection rules that govern all other financial products.
Student loans are classified as statutory rather than contractual, meaning Parliament can alter their terms without the mutual agreement required under a private contract.
This allows the government to change interest rates and freeze repayment thresholds on loans already issued, while avoiding scrutiny under the FCA’s Consumer Duty regulations.
Sir Philip Augar, a former banker who gave evidence to the committee, argued the situation created a “moral issue” where terms were changed in an “almost sneaky way” by successive governments.
Students were told through promotional materials that repayment thresholds would rise in line with earnings, but the committee said it was never made clear these terms could be altered, with the truth “in the small print.”
Augar said: “A financial services organisation has a duty of customer care; that really ought to apply to government in the context of loans sold, effectively, to young people making the first important financial decision of their life. I share the outrage.”
The committee argued that downplaying the impact of student loans on mortgage applications could represent “a breach” of FCA Consumer Duty, with a requirement for greater transparency going forward.
In response to its findings, the committee urged the government to “reverse the repayment threshold freeze” in the Autumn Budget, citing “a moral obligation to deliver this modest fiscal reversal not only to maintain student’s trust in government, but to honour the terms and conditions under which those loans were sold.”
The report also called on the government to abandon the retail prices index in favour of the consumers prices index for calculating student loan interest rates, and to return the funding balance to a 50-50 split between students and the state.
Hillier said moving to contractual agreements would give students “extra protections,” making it “much harder” for governments of any colour to alter repayment thresholds as they have repeatedly done in the past.