Ministers intervened to stem a sharp rise in student loan interest rates, after a recent spike in inflation caused interest rates to triple for many graduates in the fall.
The Education Department said the highest rate from September will be set at 7.3% instead of the 12% it would have reached in September, based on previous inflation figures plus 3%.
The Department for Education said the change means the borrower’s accrued interest in England and Wales, with a student loan balance of £45,000, will be reduced by around £180 per month from interest rates of 12%.
According to the Institute for Fiscal Studies (IFS), setting the cap rate will benefit mainly the wealthiest graduates, as they are more likely to pay off their entire loan within 30 years of graduating. Other graduates have credits owed to them after 30 years.
The maximum interest rate is currently charged on loans to graduates earning more than £49,000 per annum, but the DfE change means all graduates will be charged the same rate at 7.3%, a significant increase from 1, 5% are currently charged on loans from These earn £27,000 or less.
Michelle Donelan, Minister for Universities England, said: “I want to assure you that this does not change the amount of the monthly payment for borrowers, and we have brought this announcement forward to bring more clarity and peace of mind to our alumni.”
Monthly student loan payments are based on income, not interest rates or the amount borrowed. Graduates pay 9% of their earnings above the repayment limit of £27,295 per year.
Ben Waltman of the IFS said: “We said in April that the current policy on student loan rates was deeply flawed and would lead to a rapid ride in interest rates for graduates. It is great to see, as we suggested, that the government has decided to take action to prevent rollercoasters.”
However, for most graduates, this announcement will have little or no impact on their payments. Most people with college loans likely never pay off their loans in full, so the interest rate never affects their payments. »
But Larissa Kennedy, president of the UK Students’ National Union, said the new fees would remain “too high” for many graduates.
Ministers must prioritize urgent provision of cost-of-living assistance here and now. We hear from students who can’t even ride the bus anymore, he said.