In the face of high inflation, the British government is stepping up its initiatives in favor of student loan holders. While the consumer price index topped 10% in July – unheard of in forty years – London had to respond: the rates for student loans were based primarily on inflation.
A sword shed for millions of borrowers in a more general context of tensions over purchasing power. On August 10, the government therefore decided to cap the variable rates at 6.3% for outstanding loans from September 2022. A decision that came two months after the 7.3% cap announced in early June.
Without this decision, student loan holders would have faced a rate of up to 12% at the start of the school year, according to the Ministry of Education. If the monthly payments for these loans are fixed, their term will be mechanically extended to accommodate the increase.
“We understand that a lot of people are concerned about the impact of higher prices and we want to reassure people that we are stepping in to provide support where we can,” said the education secretary, superior, Andrea Jenkins.
182 billion pounds in assets
For those starting their studies this year, the government has also made a promise: their loan rate cannot exceed the inflation rate for the life of the loan. “No new graduate will ever have to repay more than what he has borrowed in real terms,” the minister pledged.
Nearly £20 billion is loaned to about 1.5 million higher education students in England each year, according to the House of Commons report, which puts the average debt per new borrower at around £45,800 (54,000 euros). Student debt with the Student Loan Corporation, a government agency, in March amounted to 182 billion pounds.
However, this cap would not have a significant impact on the majority of borrowers, said Judge Ben Waltman, an economist at the Institute for Tax Studies (IFS) in London. In fact, only those with higher incomes pay off their student loans. Others can stop paying after thirty years, even if the loan has not been paid in full. The reform that will come into effect in 2023 should be forty years old.
Ben Waltman explains that “the most important topic is about loans that finance daily life, not school fees.” Students from the poorest families who live away from home and study outside London, will be able to borrow £9,706, an increase of 3% over one year, well below the inflation rate. “The government can be forced to act to make up the gap,” says the economist.