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Finance

David Cameron urged to reconsider freeze on student loan repayment threshold

Consumer champion Martin Lewis has made a direct appeal to the Prime Minister to urge him to reconsider the Government's decision to freeze the repayment threshold for student loans.

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Mr Lewis has written to David Cameron to ask him to take a personal interest in the decision and look at reviewing it.

The MoneySavingExpert.com founder has already hired lawyers to investigate the possibility of challenging the move, but in his letter to Mr Cameron he says the issue is as much a moral one as a legal one.

Mr Lewis’s letter asks Mr Cameron for a meeting to discuss the issue alongside some affected students, graduates and their parents.

George Osborne used his Autumn Statement to freeze the level at which graduates start to repay their loans at £21,000, instead of increasing it in line with average earnings.

The measure will apply retrospectively for existing students who had taken out loans expecting the threshold to rise in line with wages, and is expected to benefit the Exchequer by £360 million a year by 2020-21.

The £21,000 limit was due to be increased in line with earnings from 2017, and the change was previously labelled a “disgrace” by Mr Lewis.

The letter to Mr Cameron says: “I feel compelled to write to you over the decision to retrospectively change the terms of student loans.

“In 2011 I was appointed head of the Independent Taskforce on Student Finance Information. I worked with your ministers who said, unambiguously, that from April 2017 the £21,000 repayment threshold would start to rise annually with average earnings.

“This information was then communicated to students and formed a core part of the calculations about how much university would really cost them – including in student loan repayment calculators.

“The decision to backtrack on this is hugely damaging. It means many lower and middle-earning graduates will repay thousands more over the life of their loans.

“However, even more important than the additional cost is the message this sends. The regulator would not allow any commercial lender to make a change to its terms this way. It is therefore surely wrong for the Government to do so – retrospective changes have always been seen as bad governance.”

The Blue Book setting out Mr Osborne’s decisions said it had been made “to reduce Government debt” and the threshold for borrowers under the system introduced in England and Wales from September 2012 would be frozen until April 2021.

Mr Lewis’s letter says the change is “just as much a moral issue as a legal one”.

It continues: “I ask you to take a personal interest in this decision and look at reviewing it. Present and future generations must be able to trust the Government to keep its word on student finance.”

A Department for Business, Innovation and Skills spokesman said: “Students do not have to pay anything back until they are earning £21,000 and will only pay back 9% of earnings above that amount.

“While the economic recovery is under way, graduate earnings haven’t risen as they were expected to and we consulted on the change with the sector and student organisations in the summer.”