Student Loan Interest Rate Increases

Student loan interest rates are set to increase from 4.5% to 12% for many this September. 

For those currently at university in England, the interest rate on student loans is calculated by adding 3% to the retail price index (RPI) measure of inflation which is based on the changes in a range of costs over time, including housing.

Martin Lewis has warned students not to panic too much by the latest announcements, as unless you are a high earner straight out of university, the amount of interest added will not make a difference to the amount you repay. Student loans are repaid as a percentage of your gross salary above a threshold. Currently, students must repay loans at a rate of 9% on everything they earn above £27,295 a year. This means even if interest dramatically increases the overall amount owed, it will not change the amount to be paid back each year.

However, there has been confusion regarding the changes which has deterred many students from going to university, Hillary Gyebi-Ababio, from the National Union of Students has said, as well as causing “unparalleled uncertainty for the millions of graduates already repaying their loans, with thousands of pounds added to their debt sheet.”

The Institute for Fiscal Studies (IFS) has said current estimates suggest interest is likely to fall back to about 7% in March 2023, with some fluctuation in the following couple of years. They have said it will not make a big overall difference to how much people pay.

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Rachel Keane

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May 2022
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