Student loan interest rate will rise to 12 per cent in England this year

For students starting in 2023 the rate will be capped

Graduates will pay as much as 12 per cent interest on their student loans this Autumn, a new report by the Institute for Fiscal Studies (IFS) reveals. This is the highest interest rate since 2012 when tuition fees were raised to £9,000.

For students who start their degrees in 2023, however, the interest rate will be capped at a lower level.

The interest rates for student loans is calculated by adding three per cent to the retail price index (RPI) measure of inflation. As the RPI figure is set to rise, so too will the student loan interest rate, from around 4.5 per cent to 12 per cent by September 2022.

This means that a recent graduate on more than £49,130 a year would pay an extra £3,000 on a balance of £50,o00 over a six month period. Meanwhile, lower-earning graduates will see their interest rates surge from 1.5 per cent to nine per cent.

While the IFS predicts future interest rates may be turbulent, there won’t be a large impact on loan repayments in the long run.

This comes as new changes to the student loan system could see graduates saddled with as much as £100k over their lifetime.

National Union of Students Vice-President Hillary Gyebi-Ababio commented: “These figures are brutal. 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.

“Students aren’t cash cows, and we can’t keep taking the brunt of this government’s regressive actions that have left millions exposed to hardship. Education is a right for all, not a product that can be bought and sold for individual gain. The Government must immediately commit to reversing these planned changes”.

Featured image: Shutterstock / Kiran’s Captures

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