EXCLUSIVE: Graduates say they were “mis-sold” student loans after being told repayments would be like paying a mobile phone bill – only to see soaring interest and frozen repayment thresholds leave them struggling to buy homes and start families
When Lucy Newton signed up for student finance to fund her university degree at 18, she believed she was investing in her future. Instead, the 26-year-old solicitor says she has found herself trapped by a debt that keeps growing despite paying hundreds of pounds every month.
Now, after MPs concluded the Government has a “moral obligation” to reverse a controversial freeze on student loan repayment thresholds and said parts of the system amounted to “mis-selling”, graduates say the report simply confirms what they’ve believed for years.
Many say they were encouraged into taking out tens of thousands of pounds of debt after being reassured repayments would be little more than the cost of “a phone bill” – only to discover the rules could change after they had signed up.
For Lucy, who works in child protection for social services, the consequences have been life-changing. Coming from a low-income background, she relied on the maximum maintenance loan to attend the University of Liverpool before taking out another loan to fund her Legal Practice Course and qualify as a solicitor.
Her total borrowing stood at £65,667. Yet after 18 months of repayments – currently around £300 every month – her balance has ballooned to more than £84,337.61 after thousands of pounds of interest was added for her undergraduate and postgraduate degree, after it started accumulating during her years of study.
“I absolutely didn’t understand how it worked,” she said. “We were told in college that you’d never notice the repayments. It wouldn’t make any difference to your payslip, and that couldn’t be further from the truth.
“If I’d known the impact it would have on me now, I would’ve done a different career or an apprenticeship. It pains me paying £300 every month towards this loan.”
Lucy, who still lives with her boyfriend’s parents in Hertfordshire because saving for a house deposit has become so difficult, says every pay rise now feels like a punishment rather than a reward.
“I’m getting a pay rise this month, but I don’t think I’ll be much better off once tax, National Insurance, my pension and student loans come off.
“What is the incentive? Why would anyone in my position want to earn more money when the more I earn, the more they take off me?
“I don’t mind paying it back if the loan was actually going down. But when thousands of pounds in interest are added every year, that’s insane.”
The Treasury Committee has now echoed many of these frustrations. A recent report concluded that governments have repeatedly changed the repayment threshold after graduates had taken out loans, despite originally promising the threshold would rise annually with earnings.
MPs also criticised Department for Education promotional material comparing student loan repayments to the cost of a mobile phone contract or cinema tickets, arguing the comparison was misleading for higher earners, particularly affecting those with “Plan 2” loans issued in England between September 2012 and July 2023 – which affects all people featured here.
The committee also said YouTube videos and slides used to “educate” students did not disclose that the government could change the terms and conditions of loans. It also found that the Student Loan Company has not made it clear enough during the loan application process that the government could retrospectively change the terms and conditions.
During the October budget, Chancellor Rachel Reeves froze the salary threshold for loan repayments for three years, commencing in 2027. From next year until 2030, graduates will be required to pay back nine percent of everything earned above £29,385.
Graduates will likely be left worse off as a result, as the threshold would have otherwise risen with inflation.
Joe Hazell, 31, from West Yorkshire, argues the amount does not take rising inflation and the constant tax add-ons into consideration.
The NHS commissioner, who studied History and Politics before completing a master’s degree, says careers advisers repeatedly told students not to worry because repayments would be like paying for a phone bill.
“We were told to think about it as a phone contract,” he said. “But I’m paying hundreds of pounds back every month. They told us the thresholds would increase with average earnings. The interest rate wasn’t explained properly at all.”
Like Lucy, Joe came from a working-class family and says university simply would not have been possible without student finance. Today, however, he pays around £400 every month across his undergraduate and postgraduate loans.
Although he has repaid around £10,000 of his undergraduate borrowing, almost £25,000 in interest has been added, leaving him owing significantly more than he expected.
“I accepted I’d have to repay the loan,” he said. “But I thought the terms I signed up to would be honoured. I feel trapped.”
Joe says the repayments affected what he and his wife could afford when buying their first home because mortgage lenders took the deductions into account when assessing affordability.
“It delayed us buying the house we wanted and delayed starting our family,” he said.
“I’m fortunate because my wife didn’t go to university and her income isn’t affected by student loans, but the repayments have absolutely been a financial drag. I wouldn’t want my own children signing up to this system.”
Others say even relatively high salaries no longer deliver the financial security previous generations enjoyed.
Imy, a product manager from Oxfordshire, left university with around £55,000 of debt after completing undergraduate and postgraduate degrees.
He now sees around £829 deducted from his salary every month for student loan repayments. As a teenager, he too remembers being told student finance was “the best loan you’ll ever get” and likened to paying a phone bill.
“I didn’t know what interest rates were,” he said. “I didn’t understand what repayments would actually look like if you were earning a higher salary.”
Despite owning a home after years of living with his parents to save a deposit, he says student loan deductions continue to delay other milestones.
“I couldn’t afford to have a child right now,” he said. “Whatever milestone you want – a wedding, children, a house – it’s another five years down the line.
“I have objectively a good salary, but it doesn’t feel like it. I still shop at the cheapest supermarkets, I don’t drive a fancy car and I don’t feel my lifestyle reflects what I earn.”
He believes freezing repayment thresholds sends the wrong message to ambitious young professionals. “It takes the incentive out of progressing. You work harder, earn more, then more is taken away.”
Oliver Gardner, founder of campaign group Rethink Repayment, said repeated freezes had “completely undermined graduates’ trust in the system” and accused successive governments of treating young graduates as “cash cows”.
“We have heard from thousands of people who have not been able to buy homes or start families due to the financial pressures caused by their student loan repayments,” he said.
The Treasury Committee received more than 52,000 responses during its inquiry – one of the largest ever submitted to a select committee.
Its report concludes the Government should reverse the latest threshold freeze, move towards sharing university funding equally between graduates and taxpayers, and stop linking student loan interest to the higher Retail Prices Index.
For graduates like Lucy, however, the damage has already been done. “It wasn’t the loan we signed up to,” she said. “We’ve been mis-sold. A private bank wouldn’t be allowed to change the terms like this. Why should the Government?”
Oliver added: “These freezes mean that people are now paying back more every month which is making it harder for them to save for their futures. We have heard from thousands of people who have not been able to buy homes or start families due to the financial pressures caused by their student loan repayments. This will have awful long-term consequences for the UK economy if it’s allowed to continue.
“The Government has a ‘moral obligation’ to urgently reverse the planned freeze from 2027 to 2030 and stick to the promises given to young people when they took out these loans.”
An SLC spokesperson said: “The Treasury Committee’s inquiry makes an important contribution to the debate on student finance. The Student Loans Company administers student finance on behalf of the UK Government and the devolved administrations of Wales, Scotland and Northern Ireland, supporting students and borrowers throughout their student finance journey, in accordance with government policy.
“We recognise the importance of ensuring that students and borrowers across all repayment plans have access to clear, accurate and timely information about student finance.
“We take this responsibility seriously and we will continue to work closely with the Department for Education, including on any wider actions arising from the report.”
