The situation facing graduates with student loans is comparable to the Payment Protection Insurance (PPI) scandal, the previous chair of a government review into Post-18 education has suggested.
Giving evidence to the Commons Treasury Committee, Sir Philip Augar said that changing the terms of Plan 2 loans, including the freezing of the repayment thresholds, is a “moral issue”, saying he “shares the outrage” that is building among graduates.
This year has seen rising criticism of the student loans system after the chancellor announced at the autumn 2025 budget that the repayment threshold would be frozen for three years. This means that graduates are likely to be pulled into higher repayment bands as their salaries rise with inflation.
Plan 2 student loans are those taken out for undergraduate courses and Postgraduate Certificates of Education since 1 September 2012 in Wales, and between 1 September 2012 and 31 July 2023 in England.
Asked whether he would expect the Financial Conduct Authority to intervene if a bank changed the terms of a loan in a similar way to student loans, Sir Phillip told the Treasury select committee: “I’m thinking immediately of the car loans scheme and the payment protection insurance (PPI) scandal, which produced exactly the outcome you’ve described, yes.”
The PPI scandal unfolded after banks mis-sold insurance policies that many customers did not want, need, or were even aware they were paying for, with lenders being forced to pay out over £38bn in compensation.
Speaking about the changing terms of student loans, Sir Philip said: “Plan 2 people signed up to terms and conditions that were not properly explained”, adding that financial services organisations “have a duty of customer care”.
He continued: “That really ought to apply to government in the context of loans effectively sold to young people making the first important financial decision of their life. I share the outrage.”
However, Vivienne Stern, the CEO of Universities UK, told the Treasury committee she is not “not personally persuaded that the Financial Conduct Authority is the right body to provide that scrutiny because it isn’t a commercial loan.”
She added: “So scrutiny, transparency and fairness in term: yes. Should it be regulated in a way that commercial financial products are? I’m not sure it should”.
Meanwhile, Kate Ogden, a senior research economist at the Institute for Fiscal Studies (IFS), said that Rachel Reeves’ decision to freeze both the repayment threshold and the interest rate thresholds is a “particularly egregious example of the tinkering of terms”.
She said: “A particularly egregious example of the tinkering of terms was the recent freezes [in] the Budget.
“There were there actually two freezes. They froze the repayment threshold, which did get some press, and they froze the interest rate thresholds that determine the RPI to RPI plus 3 per cent that’s added. That second change wasn’t mentioned anywhere in the Treasury budget documents. We had to go and ask them.”
In an attempt to mitigate criticism of the loans system, the government recently announced interest on plan 2 loans, which is linked to the rate of retail price index inflation (RPI), will be capped at 6 per cent from September to protect graduates from rising inflation during the war in Iran.
Interest on Plan 2 loans is charged at the rate of RPI inflation plus up to 3 per cent, depending on how much a graduate earns, meaning the current maximum is 6.2 per cent.
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 per cent of their income above it.
Plan 2 borrowers saw repayment terms changed in 2022 when a freeze in the repayment threshold was announced, and later extended for two years.
These changes will mean graduates from the 2022/23 entry cohort earning £40,000 or above will repay £740 more in 2032 than under the terms in place for plan 2 less than a year before they began studying, a report from London Economics found.
Researchers also said changes have had a harder impact for lower and middle-earning graduates while high-income graduates “have been almost unaffected by the changes”.
Changes made in 2022 account for around £4.6bn of the additional costs of repayments for graduates, said Dr Gavan Conlon, partner at London Economics, compared with £1.3bn for the recent freeze.
It comes after a major survey of public opinion found that confidence in the value of going to university has slumped amid declining job prospects and anger over student debt.
The latest British Social Attitudes (BSA) survey found fewer people believe university is worth the time and money than 20 years ago.
The number of people saying it is not worth going to university hit a record high of 34 per cent last year, more than twice the 15 per cent who said the same thing in 2005.
Meanwhile, the belief that graduates are better off in the long run has collapsed from 50 per cent in 2005 to 36 per cent.
The findings of the BSA come 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.
At the same time, opportunities for graduates have reduced, with 700,000 now out of work and receiving benefits – an increase of 200,000 since 2019, according to the Centre for Social Justice think tank.
The annual BSA survey was carried out by the National Centre for Social Research between August and October 2025, and polled 4,656 people across the UK.
