There will be no extra charge on students who want to pay back their loans early after they graduate, Business Secretary Vince Cable has confirmed.
The UCU lecturers' union said it was a "policy designed to make life easier for the wealthiest".
Mr Cable had denied claims from MPs that this was a "trade off" for making Les Ebdon university access chief.
He said the deal for students was "fair, sustainable and progressive".
The decision on whether to allow students to pay off their loans early without any penalty had been put off throughout the negotiations over raising tuition fees.
There had been shifting political dividing lines about whether this would advantage youngsters from wealthy backgrounds - and there were claims that the decision had become embroiled in the controversy over appointing Mr Ebdon to lead the Office for Fair Access.
There had also been claims from consumer groups that early repayments on such low-cost, long-term loans would benefit the Treasury rather than students.
Universities Minister David Willetts said: "This decision gives students beginning their studies this autumn clarity about the repayment arrangements that will be in place when they graduate."
But Liam Burns, president of the National Union of Students, said: "Early repayment penalties ultimately risk making the student loans system more regressive, but the issue of whether they should be barred or encouraged is a smokescreen that obscures the truth about paying back earlier than required.
"Ministers must come clean on student finance to ensure those on low and middle incomes are not duped into chipping away at their outstanding debt even when it rarely makes financial sense to do so, particularly for those who are seeking to get on the housing ladder or start a family."
Sally Hunt, general secretary of the UCU lecturers' union, said: "Government should be prioritising how to make it easier for poorer families to afford university, rather than focusing on yet another policy designed to make life easier for the wealthiest in our society. This move exposes once again that we really are not all in this together.
While no-one would condemn any family that sought to pay off their children's debt as fast as possible, today's move simply exposes yet again what an inconsistent mess the higher education reforms are.
"Parents considering this option should make sure they study the small print and check that money they have invested does not offer a better return than paying their children's debt off."