Changes to student loan conditions ‘made in almost sneaky way’, MPs told

Ellie Ng, Press Association

Successive governments made changes to the terms and conditions of some student loans in an “almost sneaky way”, MPs have been told.

Sir Philip Augar, chairman of the Augar review into higher education funding, also said there is a “moral responsibility” not to make such alterations as he gave evidence to the Treasury Committee on Tuesday.

It comes amid pressure to reform the student loan system, with recent graduates describing it as unfair due to high interest rates and the unlikelihood of paying off the debt.

Rising criticism of the system this year has focused particularly on the repayment terms for plan 2 loans after the Chancellor announced at the autumn 2025 budget that the repayment threshold would be frozen for three years.

These loans are those taken out for undergraduate courses and postgraduate certificates of education since September 1 2012 in Wales, and between September 1 2012 and July 31 2023 in England.

Asked about changes that have been made to the terms and conditions of these loans in the first session of the Treasury Committee’s inquiry into student loans and the taxation of graduates, Sir Philip said: “I share the general outrage.

“The plan 2 people signed up for terms and conditions that were not properly explained, I mean it was there in the small print but really you had to be right into the small print to get this, and I think that a financial services organisation has a duty of customer care … and 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.

“There’s a moral issue here.

“You shouldn’t be retrospectively changing the terms in quite a complicated, almost sneaky way bit by bit.

“I don’t think there were bad actors in this, but it’s just each administration has made a small change. You add them all together, you compound them and you get the current distorted situation.”

He added: “If there isn’t a legal responsibility, there’s a moral responsibility not to alter terms and conditions as we go along.”

Reflecting on the current state of the student loans system in general, Sir Philip also said he “would not be at all surprised” if banks or private credit providers were looking at coming up with alternative loan options, but made clear he has “no knowledge of this”.

A Government spokesperson said: “We recognise that some graduates have concerns about the cost of student loan repayments and understand why this is an important issue.

“We inherited the current system and have taken steps to make it fairer – including raising the repayment threshold for the first time since 2021 and capping maximum interest rates this year to protect graduates from rising costs. We have also reintroduced targeted maintenance grants to expand opportunities for people from all backgrounds to go to university or college.

“The student finance system protects lower-earning graduates, with repayments linked to income and any outstanding balances and interest written off at the end of repayment terms.”

Interest on plan 2 loans is charged at the rate of Retail Price Index (RPI) inflation plus up to 3%, depending on how much a graduate earns.

The Government announced earlier this year that this interest will be capped at 6% from September to protect graduates from rising inflation during the war in Iran.

The repayment threshold will be frozen for three years at £29,385 from April 2027 under the autumn budget changes, meaning more graduates will start making repayments earlier.

Once graduates cross the threshold, they repay 9% of their income above it.