Interest rates on student loans in England hiked up to 12%

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Interest rates on student loans in England and Wales are set to increase up to 12% due to growing inflation. Student loan interest rates after 2012 are linked to the Retail Price Index or RPI. In March, RPI rose to 9%, a significant increase from its current rate of 1.5%. This will cause major repercussions for Individuals who applied for student loans after 2012.

According to Institute for Fiscal Studies, highly paid Graduates with an annual salary of £49,130 or more will be directly affected by this change in RPI. Currently, high-earning graduates are required to pay an additional three percentage points more than low-earning individuals.

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Their loan interest rates will increase from 4.5% to 12% from September onwards. Consequently, they will be accumulating a debt of £3,000 on their loan till March 2023.

In the case of low-paid Graduates interest rate has been hiked from 1.5% to 9%. On the other hand, interest rates for student loans availed before 2012 will remain unchanged.

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Benn Waltmann, Senior Research Economist, IFS, commented, ‘Unless the government changes the way student loan interest is determined, there will be wild swings in the interest rate over the next three years.’

Hillary Gyebi-Ababio, the Vice-President of the National Union of Students for Higher Education, stated, ‘Increasing the maximum interest rate on student loans to 12 per cent will deter thousands of students from going to university and will cause unparalleled uncertainty for the millions of graduates already repaying their loans with thousands of pounds added to their debt sheet’. She, therefore, urged the government to start working on overturning the planned changes before September.

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A spokesperson for the Department of Education said that, unlike commercial loans, students loans are protected in several ways. For instance, monthly loan repayments are linked to income instead of the borrowed amount or interest rates.

Moreover, borrowers who earn below the repayment limit of £27,275 are not required to make any payment at all. The government has also reduced interest rates for new borrowers for the academic year 2023-24.

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Students starting their higher education in 2023 and who will go on to earn an annual income of £50,000, will be able to save about £20,000 throughout the loan period because of lower interest rates.

In addition to this, the government has also introduced other measures such as introducing a lower borrowing limit and extending the repayment period to 40 years from 30 years.

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