Millions of graduates affected as student loan interest rises to eye-watering heights
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Millions of students and graduates are set to be hit with an eye-watering 6.3 per cent rise in the interest rates charged on their loans, following an increase in the Retail Prices Index.
The rise will impact all students in England, Wales and Northern Ireland who started university from 2012 onwards and sees interest rising from 6.1 per cent to 6.3 per cent, it comes only a year after interest rose from 4.6 per cent in September 2017.
This rise is not something that will increase an individual’s monthly repayments but instead will increase the overall total student loan debt which an individual pays back over a 30-year period.
Ministers have come under fire for the steep rise in interest, in response to criticism they say they will be considering interest rates in their current review of post-18 education and funding.
The rate of interest applied to student loans is updated each September and is always based on the RPI inflation rate from the March of the same year. RPI is something that is published monthly by the Office for National Statistics and measures the change in the cost of a representative sample of retail goods and services.
Addressing the rise in interest applied to student loans, a spokesman for the Department for Education said: "This change in interest rate will make no impact on a borrowers' monthly repayments and very few people are likely to be affected by the increase.
"Once the loans are in repayment, only borrowers earning over £45,000 are charged the maximum rate. This ensures that they make a fair contribution to the system."
Last month the government raised the repayment wage threshold by £4,000 for those on the 2012 repayment plan. Meaning that graduateswho started university from 2012 will now only start repaying their loan when they are earning over £25,000. This is something which is saving some borrowers up to £360 a month, ministers say.
However, the National Union of Students (NUS) has noted the significant “psychological burden" of debt being given to young people.
NUS vice-president Amatey Doku said: "Interest rates at 6.3% represent an increase of 0.2 [per cent], which, although a seemingly small degree, adds to the huge psychological burden that debt has on many students and graduates.
"Absurdly high interest rates are only a small part of student debt problem - which already leaves students from disadvantaged backgrounds with up to £50,000 of debt, most of which is never paid off.
"The current funding model continues to represent a poor deal for students, their families, and the taxpayer."