Student Loan Scandal: Over Five Million People Mis-sold Their Student Loan

Over five million people were mis-sold their student loan, according to new findings from the Treasury Select Committee, Antonia explains what it could mean for student finances.

I’ve written a lot about mis-selling scandals over the years, PPI, car finance, endowment mortgages. Every single one followed the same pattern: a company oversold a product, got caught, and eventually paid out.

This one is different because the seller was the government, and there is no compensation scheme waiting at the end of it.

This week the Treasury Select Committee published its report into Plan 2 student loans, and the findings are stark. The Committee found that 5.8 million borrowers were mis-sold loans now worth £213 billion in outstanding balances, and that the way those loans were promoted “amounted to mis-selling” in three separate ways.

Here’s what actually happened.

When Plan 2 loans launched in 2010, the government’s own promotional material compared monthly repayments to everyday costs like a phone contract, to make them feel manageable. For a lot of graduates, particularly higher earners, that comparison was nowhere close to the real cost.

Second, nobody told 17 and 18 year olds signing up that the terms of their loan could be rewritten later. Not fixed. Not locked in. Changeable, whenever a future government decided to change them.

Third, and this is the strand that gets missed in a lot of the coverage: prospective students in 2010 were told the repayment threshold would rise every year in line with earnings from 2016.

It didn’t. It’s been frozen repeatedly since, first between 2016 and 2018, then for four years from 2021, and now again until April 2030 after last year’s Budget. A promise about how the loan would work was made, and then broken, more than once.

If a bank did this, if a lender told you your repayments would track a phone bill but then reserved the right to change your terms whenever it liked, and then broke an explicit promise about how the product would behave, you’d have grounds for an FCA complaint within the week. There would be a Consumer Duty case to answer. There would, eventually, be compensation.

None of that applies here. The Treasury Select Committee was blunt about why: government lending sits outside the consumer protection framework that governs everything else. No Consumer Duty. No legal comeback. MPs described the approach as taking “the politically convenient option of loading burdens on to younger generations, hoping that they will not notice.”

For scale, this is worth putting next to PPI, still regarded as Britain’s biggest consumer compensation scandal, which cost the banking industry roughly £50 billion once banks were forced to admit what they’d done. This report puts the mis-sold total at more than four times that. There is no equivalent reckoning coming, because the small print means the usual rules simply don’t apply.

And the cost keeps compounding. Last year’s Budget froze the repayment threshold for three more years, which means more graduates paying more, for longer, on loans they were never properly warned about. The Committee has called on the Treasury to reverse that freeze, at a cost of around £355 million a year, and called it a “moral obligation.” The government isn’t required to act on that.

We have a cross-party parliamentary committee, not campaigners, not claims management firms, using the word “mis-sold” about a financial product held by nearly six million people.

If a regulated company did this, the outcome would not be in doubt. When it’s the government doing the lending, “mis-sold” appears to be a word with no consequences attached to it.

If you took out a Plan 2 loan and didn’t know the terms could change after you signed up, you weren’t missing something. You were never told.

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Sources: Treasury Select Committee, “Student loans: Broken and unfair?”, published 7 July 2026; Dame Meg Hillier, Chair, Treasury Select Committee; Department for Education and Student Loans Company evidence to the inquiry; Institute for Fiscal Studies analysis of reform proposals.