Capped Student Loan Interest Rates
The interest rate on student loans for current graduate borrowers will be reduced to 7.3% from the 12% that was to apply from September.
The retail price index (RPI) inflation measure for each March is used to calculate student loan interest for Plan 2 (undergraduates) and Plan 3 (students) borrowers. postgraduate).
It applies to students from England and Wales who have taken out a loan for a course commencing on or after 1 September 2012 and currently stands at 4.5%.
It’s usually the RPI plus up to 3%, so given March’s 9% figure, that means these borrowers faced a mind-blowing 12% interest rate in September.
Confirmation of interest rates is usually made in August, but the government has taken “unprecedented steps to move the decision forward”, based on forecast rates “to reassure student borrowers”.
This means that interest rates will be capped at a maximum of 7.3% to protect graduates.
The Department for Education said it was the “largest reduction in student loan interest rates ever”. He added that for a borrower with a student loan balance of £45,000, this would reduce their accrued interest by around £180 per month compared to interest rates of 12%.
However, the interest rate on student loans has no impact on monthly repayments which will not increase for students. This is because repayments are linked to income and not to interest rates.
Interest rates only affect lifetime repayments for those who will repay their loans in full or are very close to doing so, high earners, and those with low loan balances. See the government repay your student loan guide for more information.
Higher and Further Education Minister Michelle Donelan said: ‘The government has always been clear that where it can help drive up prices we will, and I will always strive to getting a fair deal for students, that’s why we lowered the interest rate. on student loans down from the 12% expected.
“I want to reassure that this does not change the monthly repayment amount for borrowers, and we have brought this announcement forward to provide more clarity and peace of mind for graduates at this time.
“For those starting higher education in September 2023 and all students considering this next step at the moment, we have reduced future interest rates so that no new graduate will ever have to repay more than this. that he borrowed in real terms.”
In February, the government announced major changes to the loan system for new students. See YourMoney.com Student loan overhaul: Graduates could end up paying more for more information.