Students to pay 6.3% interest on loans from September
From September this year, new starters and current students will pay an interest rate of 6.3% on their loans.
This comes after the Retail Price Index (RPI) hit 3.3% in March.
This compares unfavourably with cheapest normal loans, which start at 2.7% (Sainsbury’s Bank), though this would be subject to a good credit rating. The student loan rate is also significantly higher than some credit card transfer rates. However, these loans must be paid off, whereas student loans only need to be repaid once your salary hits a certain level.
Save the Student’s Jake Butler said 2012+ starters who have graduated will be charged anything from 3.3% to 6.3% (dependent on earnings), while 1998-2011 starters will see no change to their interest amount and pre-1998 starters will see interest increase to 3.3% on their loans.
Rising interest rates won’t affect monthly repayments, but will affect how long it takes to pay the loan back.
The interest figure to be charged on student loans is updated each September and based on March’s rate of RPI from the same year. This means students have been hit hard as interest rates have risen.
Butler said: “After the excellent news from the government promising to unfreeze the student loan repayment threshold and increase it from £21,000 to £25,000 – saving graduates around £360 a year – this will come as a bit of a blow.
“While the increase in interest is not as large as the jump we saw last year, it’s yet another increase on an already astronomical percentage. Theresa May recently announced the student loan system is under review….it’s important that students and graduates remember that this increase in the interest will likely just add even more to the pot of student loan debt they’ll end up never paying back. This is more of a psychological issue than a monetary one.”
Who does this affect?
Save the Student explains what’s changing:
If you started uni after 2012 (includes current students!)
- The interest rate you currently accrue is up to 6.1%
- In September it will rise to up to 6.3%
- From September 2018 current students and new starters will be charged the maximum interest of 6.3% while at university
- If you have graduated, the interest rate is calculated using RPI + up to 3% depending on your earnings. Those earning £45,000+ will be charged the full interest amount of 6.3% and those paid £25,000 or less will be on 3.3% interest, with anyone in between on a sliding scale
- You don’t start repaying your loan until the April after your graduation and you’re earning more than £25,000 per year
- Unless you start off with a graduate salary of higher than £28,000, it’s unlikely you’ll pay off your full loan and interest before it’s wiped after 30 years anyway
If you started uni between 1998-2011
- The interest rate you’re currently charged is 1.5%
- In September it will stay at 1.5%
- This is because it’s based on whichever rate is lowest out of RPI OR the Bank of England base rate + 1%.
- The Bank of England base rate is currently 0.5%, so when you add the 1% it makes 1.5%
- Those who studied at this time start paying back their student loan once they make over £18,330 per year (up from £17,775 last year).
If you started uni before 1998
- The interest rate you’re currently charged is 3.1%
- In September it will increase to 3.3%
- This is because it is based on the March RPI figure alone
- The amount you must earn to repay will increase to £29,219.