The interest rate charged on student loans is set to rise by a third as the pound’s post-Brexit plunge has caused an increase in inflation.
Whilst current students and new starters are currently charged a rate of 4.6 per cent on their loans, new students this year can expect rates to jump as high as 6.1 per cent from September.
Student loan rates are updated annually and are calculated by using the March retail price inflation figure (RPI) plus 3 per cent. Since March 2016 the UK’s RPI figure has risen dramatically from 1.6 to 3.1 per cent.
The advantages of today’s record low interest rates are being reaped by many consumers, but not by students. Many graduates and students alike will see their student loan’s interest rate surge upwards by more than 24 times the Bank of England’s base rate of 0.5 per cent.
The magnitude of this increase, and the extent to which it will impact each individual, very much depends on when a student entered higher education.The only group not to experience any increase are those who began their university careers between 1998 and 2011. Everyone else will be affected.
Nevertheless, the scale of the jump is disconcerting. It’s true that some students who started university after September 2012 may seek comfort from knowing that they will only have to begin repaying their loan after earning more than £21,000 a year.
Jake Butler, an expert at money advice website Save the Student, said: “I was expecting an increase to student loan interest this year, but this is worse than expected. It really demonstrates that the interest on loans under the new system is far too high and should be reassessed.
“But students need to remember that it’s highly unlikely they’ll pay off their full loan debt before it’s wiped 30 years after their graduation.
“So in reality, this increase is just adding to the massive amounts of accumulative student loan debt that the government will never see.”