Student loan interest rate in England and Wales to rise in September
As thousands of school leavers scramble for university places, the Department for Education has announced that the interest rate applied to student loans is rising to 5.6%.
Each year, student loan interest rates are calculated according to March’s retail prices index (RPI) inflation figure which this year was 2.6% – plus an extra 3% on top.
The new rate, which is up from 5.4% last year, comes into force on 1 September and affects all new students in England and Wales, and graduates who took out loans since 2012.
Related: Universities brace for the biggest ever clearing day
In contrast, students based in Scotland and Northern Ireland, plus those who took out loans in England and Wales before 2012, will see their student debts rise by an unchanged 1.1% over the next 12 months.
A student in England with an outstanding loan of £30,000 will have £1,680 added to their debt this year. Recent graduates will see even more added to the sum they owe.
The interest rate increase comes at at a time when the Bank of England base rate is just 0.1%, and the government has been falling over itself to offer financial help to consumers struggling with the Covid-19 pandemic.
It also comes against the backdrop of the A-level furore that has left thousands of students wondering whether they have the grades to get into university, and whether they can afford it, given that part-time work will be hard to come by for the foreseeable future.
A student in England on a typical three-year course with fees of £9,250 a year and a £6,378 a year maintenance loan can expect to graduate with £46,884 of debt – before any cumulative interest is added.
Campaigners have long called on the student loan scheme to be replaced with something fairer. In 2017, one of Theresa May’s former chiefs of staff described student loans as an “ultimately pointless Ponzi scheme”.
The Department for Education said: “We want everyone with the talent and potential to benefit from a university education, which is why loans are available to all students regardless of background or financial history. Changes to interest rates will have no impact on monthly repayments because these are based on income, not the interest rate or amount borrowed.”
The government said that the threshold at which recent graduates have to start repaying their loans will rise from £26,575 to £27,295 a year from April 2021. Graduates have to repay 9% of any salary above that amount each year. Ministers have committed to look at the role of student loans and interest rates as part of a wider review of post-18 education.
Helen Saxon, the banking editor at MoneySavingExpert.com, said: “While an interest rate rise may seem unfair and unwarranted when so many are struggling with their finances due to the coronavirus, it’s not actually as bad as it seems. Most people will never fully repay their student loan before it gets wiped after around 30 years.”
