In their inquiry ‘Student loans and taxation of graduates’, the Treasury Committee concluded the system is unfair and borrowers are unclear about Loan terms and how must will be repaid. If this was a commercial arrangement, this amounted to mis-selling. The UK Government has responded.
On 07 July 2026, the Treasury Committee published a report ‘Student loans: Broken and unfair?’ that looked at all Loan types, focusing on Plan 2 in England (available to borrowers between 2012 and 2023, now replaced by Plan 5). The report was critical and concluded:
- Currently, the system is designed that ex-students repay up to 95% of the cost of higher education. This should be balanced with a 50:50 split between borrower and taxpayer;
- The entire system is complicated and borrowers may not know the value of the Loan they have to repay considering the use of the Retail Prices Index (RPI) rate of inflation;
- It is unclear rates and thresholds may change, notably the repayment threshold freeze announced at Autumn Budget 2025; though
- Most borrowers never repay their Loan and it is written off at a cost to the taxpayer
On 13 September 2026, the UK Government responded as follows:
- There is no agreement the system should move to a 50:50 split. Considering the grants and allowances already available, the taxpayer already meets 35 – 40% of the debt;
- There is no acceptance of changing the RPI inflation index to the lower Consumer Prices Index (CPI) rate of inflation;
- The UK Government recognises concerns about the planned freeze to the Plan 2 threshold for English borrowers, though, makes no comment on whether this will go ahead; but
- More can be done to improve communication to borrowers, especially concerning the facts that legislation can be amended retrospectively and high earners can expect to repay more of their Loan
In short, Student Loans are not a commercial contract and there is no intention of moving them to this type of arrangement. However, we can expect clearer guidance from the Department for Education (DfE) and Student Loans Company (SLC).
For Bookkeepers
Of course, the main consideration for employers and software developers is whether the Plan 2 threshold for English borrowers will go ahead from April 2027 as announced. This could mean a divergence between the threshold for Welsh borrowers, as Plan 2 also applies.
The UK Government response is silent on this; however, the reality is that there is no time left to split Plan 2 into one for English and one for Welsh borrowers. This is administratively impossible for both HMRC and software developers. So, look out for an announcement on this at the UK Budget in October 2026