Graduates expected to be hit by student loan interest rates of up to 12%

Interest rates on student loans in England and Wales are set to rise to 12%, up from the current rate of 1.5%. Unless the government steps in, the raise is likely to cost the highest-earning graduates an additional £3,000, the Institute for Fiscal Studies predicts.

The new increase is linked to the rise in the retail price index (RPI), a measure of inflation published monthly by the Office for National Statistics. Student loan interest rates are currently calculated by adding 3% to the RPI. Although the rate is expected to fall again in March next year, the change has been decried as “brutal”.

Hillary Gyebi-Ababio of the National Union of Students replied on the news saying, “Raising the maximum interest rate on student loans to 12% will deter thousands of students from going to college and bring unprecedented uncertainty to the millions of graduates who are already paying off their loans, with thousands of pounds added to their debt sheet.” She went on to say, “Students are not cash cows, and we cannot continue to bear the brunt of the regressive actions of this government which have left millions exposed to hardship”.

The government must urgently adjust the operation of the interest rate cap to avoid a major spike

As well as being criticized as unfair, the government’s policy on student loan repayment has been castigated as bad economic sense. Ben Waltmann, senior research economist at IFS, said declared“Unless the government changes the way student loan interest is determined, there will be wild swings in the interest rate over the next three years.” He added: “There is no good economic reason for this. Interest rates on student loans should be low and stable, reflecting the government’s cost of borrowing. The government must urgently adjust the way the interest rate cap works to avoid a big spike in September.”

While most graduates are expected to pay 9% interest from September, the highest-earning graduates who are expected to be hit by the 12% hike will suffer the most in the long run, given that they are more likely to repay their entire loan. within thirty years of graduation.

Defending the new increase, a spokesperson for the Department of Education said insisted“The IFS report clearly indicates that changes in interest rates have a limited long-term impact on repayments, and the Office for Budget Responsibility predicts ROI to be below 3% in 2024.” Additionally, the spokesperson pointed out that student loan repayments are strictly linked to income, not interest rates or amounts borrowed, and that graduates earning below the £27,275 a year threshold will only repay. not.

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Bernadine J. Perkins