Student loans Interest rates

Student loan interest rates are set to rise for many from September – though the changes are yet to be finalised by the Government.

English and Welsh graduates who took out a student loan since 2012 are in for a rollercoaster ride on student loan interest rates in the coming years.

That would allow for the two months it takes the Bank of England to publish the relevant data, and the two months it takes for any interest rate reduction to be implemented. All else equal, those with high earnings before the cap kicks in and low earnings in the ‘overhang’ period will therefore lose out, while those with low earnings before the cap kicks in and high earnings in the ‘overhang’ period will gain. Those whose loan balances are rising over time will typically benefit from the delayed cap, as interest rates will be high when their loan balances are low and low when their loan balances are high. One such policy is shown in the chart (blue line). This policy caps student loan interest rates at the Prevailing Market Rate from four months before student loan interest is charged. Due to the delay in applying the cap, this student would have a loan balance around £600 lower in March 2025 than if the cap had come in immediately. However, there is a silver lining for borrowers: student loan interest rates will also be cut for half a year longer than the interest rate cap on student loans remains binding. A special case of this are borrowers who fully repay their loans after the repayment cap kicks in but before the ‘overhang’ period when student loan interest is no longer above the cap but the interest rate is still being reduced. The red line in the chart above (labelled “Current Policy”) illustrates what all of this will mean for maximum student loan interest rates over the next few years, assuming that the OBR’s March 2022 forecasts for inflation and interest rates prove correct. First, there is a lag of around two months between when market interest rates are measured and when they are published by the Bank of England. Second, the DfE applies the cap on a three-monthly basis rather than monthly: it waits until student loan interest rates have been above the cap for three subsequent months and then adjusts them downwards by the three-month average amount by which the cap was exceeded. These wild swings in interest rates will arise from the combination of high inflation and an interest rate cap that takes half a year to come into operation. English and Welsh graduates who took out a student loan since 2012 are in for a rollercoaster ride on student loan interest rates in the coming years. So, for example, student loan interest rates are currently between 1.5% and 4.5%, because RPI inflation between March 2020 and March 2021 was 1.5%.

Students and graduates in England will pay up to 12% interest on their loans this autumn, according to the Institute for Fiscal Studies (IFS).

"The IFS report makes it clear that changes in interest rates have a limited long-term impact on repayments, and the Office for Budget Responsibility predict that RPI will be below 3% in 2024." They will be asked to repay for up to 40 years, a change that will mean the highest-earning will pay less, as they pay off the loan more quickly. She said: "Increasing the maximum interest rate on student loans to 12% 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." The rate will dip in March 2023, when a cap on the interest will kick in. The IFS says a rollercoaster of interest rates lies ahead, but the long-term impact on repayments will not be large. Students and graduates in England will pay up to 12% interest on their loans this autumn, according to the Institute for Fiscal Studies (IFS).

The Institute for Fiscal Studies think-tank said graduates were “in for a rollercoaster ride” on student loan interest rates in the coming years. More from ...

The Government urgently needs to adjust the way the interest rate cap operates to avoid a significant spike in September.” From next year, the repayment terms will change for people in England taking out a student loan. It predicts that the maximum student loan interest rate is likely to fall to around 7 per cent in March 2023 and fluctuate between 7 and 9 per cent for a year and a half.

Student loan repayments: what is current interest rate, how much will it go up by - and for how long? Student loans are linked to inflation, which has already ...

From September 2022 - i.e. the start of the next academic year - former students will see the amount of interest added to their student loans topping 12%. “The Government urgently needs to adjust the way the interest rate cap operates to avoid a significant spike in September [2022].” “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” said Ben Waltmann, senior research economist at the IFS. For graduates, the current maximum rate of interest added to their loan is 4.5%. This is how much interest is added to your loan depending on how much you earn: The maximum interest rate on student loans will rise to 12% from September (image: AFP/Getty Images)

Most recent graduates in England and Wales will be charged 9% from September amid rising retail prices index.

The government urgently needs to adjust the way the interest rate cap operates to avoid a significant spike in September.” Interest rates on student loans should be low and stable, reflecting the government’s own cost of borrowing. They stressed that borrowers earning below the threshold of £27,275 a year before tax make no repayments. Other graduates will see any outstanding balance wiped after 30 years. Interest rates on post-2012 student loans are based on the retail prices index (RPI), with the rise in the RPI in March meaning most recent graduates in England and Wales will be charged 9% from September, up from the current rate of 1.5%. Highly paid graduates – those earning more than £49,130 – are charged an additional three percentage points (v low earners), so interest rates on their loans will rise from 4.5% to 12%. Those with student loans of £50,000 will accrue an extra £3,000 in debt until March 2023, when interest rates are next revised.

The rate of interest some graduates pay on their student loans will hit 12% in September as high inflation triggers an interest rate rollercoaster for those ...

“If implemented, a maximum interest rate of 12% would massively exceed the previous Plan 2 high of 6.6% and represent an almost threefold increase on the current top rate. The maximum student loan interest rate is then likely to fall to about 7% in March 2023 and fluctuate between 7 and 9% for a year and a half. So, for example, student loan interest rates are currently between 1.5% and 4.5%, because RPI inflation between March 2020 and March 2021 was 1.5%. These wild swings in interest rates will arise from the combination of high inflation and an interest rate cap that takes half a year to come into operation. Student loan borrowers might legitimately ask why the government is charging them higher interest rates than private lenders are offering.” The interest rate for low earners will rise from 1.5% to 9%.

Anyone who has taken out a loan since 2012 could end up paying 'eye-watering' rates of interest, higher than homeowners paying off their mortgage.

Student loan borrowers might legitimately ask why the Government is charging them higher interest rates than private lenders are offering,” they added. The situation is likely to disadvantage higher-earning graduates. Start your Independent Premium subscription today. But there is a lag between the RPI inflation rate and student loan interest rates, which the IFS calculates means that current high inflation rates will mean high student loan interest rates for 2022/23. Interest rates on student loans are usually charged between the RPI inflation rate and the RPI inflation rate plus 3%. The IFS said that the maximum student loan rate was then set to fall to around 7% in March 2023, fluctuating between 7% and 9% for a year and a half.

Graduates earning £27295 or less will see their interest rates soar from the current 1.5% rate to 9%, according to the Institute for Fiscal Studies.

Graduates earning £27,295 or less will see their interest rates soar from the current 1.5% rate to 9%, according to the Institute for Fiscal Studies. The maximum interest rate - paid by those earning £49,130 or more - will increase from current rates of 4.5% to 12%. Graduates earning £27,295 or less will see their interest rates soar from the current 1.5% rate to 9%, according to the Institute for Fiscal Studies.

The maximum interest rate is set to rise to a staggering 12 per cent for half a year for the highest earners.

Regardless, the Government has cut interest rates for new borrowers so from 2023/24, graduates will never have to pay back more than they borrowed in real terms.” The Government urgently needs to adjust the way the interest rate cap operates to avoid a significant spike in September.” “This high reading implies an eye-watering increase in student loan interest rates to between 9 per cent and 12 per cent,” the IFS said. Ben Waltmann, senior research economist at the IFS, said: “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. The interest rate rises are linked to the RPI and a rise in the cost of living. However, the spike in interest rates is only temporary, the IFS said.

Robert Halfon, Conservative chairman of the Commons education select committee, said the Government must cap interest rates immediately to prevent a squeeze on ...

The Government urgently needs to adjust the way the interest rate cap operates to avoid a significant spike in September.” And there comes a point where they are a very powerful electoral force." Interest rates on student loans should be low and stable, reflecting the Government’s own cost of borrowing. He said: “I think the interest rate has always been a very unjust part of the system… Many students will have their debts written off before they get a chance to pay them back because they never earn enough. It is not clear how many graduates will be affected by the change.