Student loan interest rates set to soar by 33%
The March Retail Price Index (RPI) measure of inflation is used to calculate the amount of interest current students and graduates in England and Wales pay on their student loans from September.
The figure, which was released today, has jumped to 3.1%, up from 1.6% in March 2016.
The exact amount you’ll need to pay back depends on when you started your university course, but Jake Butler of Save the Student said students will be charged “substantially more interest” on their loans.
Here are the key changes:
Post-2012 uni starters (includes current students)
The interest rate this group currently pays is up to 4.6% but from 1 September, it will rise to up to 6.1% – a 33% increase.
This also means that anyone starting university or studying from September 2017 will also be charged interest of 6.1%.
For those who have already graduated, the interest rate is calculated using RPI + up to 3% depending on earnings.
Those earning £41,000 or more will be charged the full interest amount of 6.1% and those who earn under £21,000 will be charged 3.1% interest, with anyone in between on a sliding scale.
But students only start repaying their loan when they earn £21,000 a year.
According to Save the Student’s loan repayment calculator, it is unlikely that those with a graduate salary of higher than £30,000 will pay off their full loan and interest before it’s wiped after 30 years.
Graduates who started university between 1998-2011
This group is currently charged 1.25% and come September, they’ll see no change. Save the Student said this is because it’s based on whichever rate is lowest out of RPI or the Bank of England base rate + 1%.
As the base rate is currently 0.25%, adding 1% makes it 1.25%. For those who studied during this time, they only start repaying back their loan once they make £17,775+ per year, up from £17,335 last year.
Graduates who started university before 1998
These graduates are currently charged 1.6% but from September the will increase to 3.1% as it’s based solely on March’s RPI figure alone. For this group, only those earning £29,126 will need to repay their student loan.
Jake Butler of Save the Student said an increase was expected but it’s worse than expected.
He said: “It really demonstrates that the interest on loans under the new system is far too high and should be reassessed.
“But these figures should be taken with a pinch of salt. Students need to remember that it’s highly unlikely they’ll pay off their full loan debt before it’s wiped 30 years after their graduation and no repayments need to be made until they earn over £21,000 per year after graduation.
“So in reality, this increase is just adding to the massive amounts of accumulative student loan debt that the government will never see.”