Banks would never get away with treating customers like the Government does in-debt graduates, writes Dean Dunham KC

If a bank changed your loan terms AFTER you signed, there’d be uproar – so why can the Government do it to graduates?

You carefully look at the repayment terms, decide you can live with them and sign on the dotted line.

Then, years later, the lender effectively says: “We’ve changed our mind. We’re changing the deal.”

There would rightly be uproar, yet that’s essentially the complaint now being made about student loans.

Millions of Plan 2 borrowers took out loans to fund university on the basis of a particular system. But the Government has subsequently changed aspects of that system and from April 2027 the repayment threshold is due to be frozen at £29,385 for three years.

Graduates repay 9% of their earnings above the threshold. So if wages rise while the threshold remains frozen, more of their income becomes subject to repayments.

The Treasury Committee has been highly critical and says the Government has a “moral obligation” to reverse the freeze.

It has also raised serious concerns about how these loans were originally presented to students, including whether previous communications properly explained that the terms could subsequently change.

The Government’s answer now includes clearer warnings for future students that loan terms can be altered, but surely that raises an obvious question:

What about the people who have already borrowed the money?

Student loans aren’t ordinary bank loans. They’re income-contingent, repayments depend on earnings and balances can eventually be written off. Government also has to balance the interests of graduates against taxpayers who ultimately fund the system.

I accept all of that. But these are still enormous financial commitments being made by people who can be just 18 years old.

Plan 2 borrowers can currently face interest rates of up to 6%, while repayments can continue for decades.

If we’re going to ask young people to make financial decisions of this magnitude, surely they deserve certainty about the fundamental rules.

And if Government believes it must retain the power to change those rules retrospectively, it should have displayed that fact in enormous letters from day one, not discovered years later when the changes cost borrowers more money.

Consumer protection is built around transparency.

Businesses are expected to explain important financial terms clearly and not hide significant information in the small print.

Government should hold itself to at least the same standard.

This isn’t about saying graduates shouldn’t repay what they borrowed. They should.

It’s about something much more fundamental:

If you expect someone to honour their side of a financial deal for 30 years, you should have to honour yours too.

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Dean Dunham KC presents LBC's Consumer Hour every Sunday from 9pm-10pm.

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