Labour has 'moral obligation' to U-turn on 'mis-sold' and 'unfair' student loans MPs say

By ELEANOR HARDING, EDUCATION EDITOR Published: 00:02, 7 July 2026 | Updated: 00:07, 7 July 2026 Labour has a 'moral obligation' to U-turn on its student loans policy because it is 'unfair' and 'amounts to mis-selling', MPs have said. Chancellor Rachel Reeves announced in her autumn Budget that the earnings threshold for repayment of Plan 2 loans would be frozen for three years from 2027 at £29,385. It means more low-earners will be dragged into payments, while higher earners will pay more, because the threshold will not rise in line with average earnings. However, a damning report by the Commons Treasury Select Committee accused Ms Reeves of changing the original terms of the loans. This is because students were originally told in 2010 that the earnings threshold would be uprated annually in line with average earnings or inflation from 2016. Dame Meg Hillier, Committee Chair, said: 'It is not common for a Treasury Select Committee, made up of MPs from the three largest parties, to agree that a specific Budget measure announced by a Chancellor must be reversed. 'This can no longer be ignored. Patience has run out.' It comes after pressure from graduate campaigners on Keir Starmer to announce a U-turn, but he has so far refused. Labour has a 'moral obligation' to U-turn on its student loans policy because it is 'unfair' and 'amounts to mis-selling', MPs have said (pictured: the Prime Minister Keir Starmer with his Chancellor Rachel Reeves) The report accused his Government of taking the 'politically convenient option' of shifting a financial 'burden' to younger generations, 'hoping that they will not notice until future years'. However, it also pointed out that the previous Tory governments were also to blame, as they froze the threshold between 2016-2018 and again between 2021-2025. The report said the actions of successive Governments, and the Student Loans Company (SLC), have 'amounted to mis-selling'. This is because the Department for Education produced YouTube videos and slides that did not disclose that the Government could change the terms and conditions of loans at a later date. In addition, the SLC did not make this clear enough in the loan application process. The DfE also said the monthly cost of repayments was comparable to that of a phone bill or cinema tickets, which was 'inaccurate for higher earners'. The report noted that the Government is 'exempted' from ever being held legally liable for 'mis-selling' the loans. However, it called on ministers to 'honour the terms and conditions under which the loans were sold' by reversing the latest freeze. Chancellor Rachel Reeves announced in her autumn Budget that the earnings threshold for repayment of Plan 2 loans would be frozen for three years from 2027 at £29,385. Pictured: Amira Campbell, President of the NUS (right), earlier this year with Roxana Khan-Williams of campaign group Organise, handing a petition on student loans to a representative at Number 10 'The Government should comply with consumer protection laws and financial services regulations, such as the Consumer Duty, even if it's not bound by them,' the report said. Some 52,000 people responded to a survey as part of the report, one of the highest response rates ever. Plan 2 loans, which were taken out between 2012 and 2023, require graduates to repay 9 per cent of anything they earn over the earnings threshold. Interest accrues at RPI plus up to 3 per cent, and any remaining balance is wiped after 30 years. Dame Meg added: 'Ministers openly accept that the system is broken and unfair but have said that it is not a priority to fix it. 'Reversing last year's threshold freeze is a modest change that would not eat up vast resources.' The DfE has been contacted for comment. It follows a report by the Policy Exchange this year which warned that half of all graduates are earning less than the median national wage of £35,000 five years after leaving university. The think tank also found only 57 per cent of graduates are in full-time work 15 months after leaving university. Critics say it is now time to stop 'luring' young people into 'debt-trap degrees', with the typical student amassing debts of £50,000 a year to study. A Government spokesman said: 'We are already taking decisive action – raising the repayment threshold in both of the last two years for the first time since 2021, capping maximum interest rates to protect graduates from rising costs, and reintroducing maintenance grants to expand opportunities for people from all backgrounds. 'We will continue to look for ways to make the system fairer for students, graduates and taxpayers in a financially sustainable way, and will respond to the committee's report in due course. 'It is vital students are given clear and accurate information so they can make informed decisions about their future and we are working closely with the Student Loans Company on communications to students.'