Ministers have intervened to reduce a sharp rise in interest rates on student loans, following the recent rise in inflation which meant that rates would triple for many graduates in the autumn.
The Department of Education said the maximum rate from September should be set at 7.3% instead of the 12% it would have reached in September, based on previous inflation data plus 3% .
The DfE said the change meant that a borrower’s accrued interest in England and Wales with a £ 45,000 student loan balance would fall by around £ 180 a month compared to 12% interest rates. .
Limiting the maximum rate will primarily benefit the wealthiest graduates, according to the Institute for Tax Studies (IFS), because they are more likely to repay the entire loan within 30 years of graduation. Other graduates have any outstanding balance cleared after 30 years.
Currently, the maximum interest rate is charged on loans to graduates earning more than £ 49,000 a year, but the change in DfE means that all graduates will receive the same 7.3%, which is a sharp increase over the current 1.5% charged on their loans. earn £ 27,000 or less.
Michelle Donelan, England’s university minister, said: “I want to make sure that this does not change the amount of the monthly repayment of borrowers, and we have advanced this announcement to provide more clarity and peace of mind to graduates.” .
Monthly student loan repayments are calculated by income rather than by interest rate or amount borrowed. Graduates pay 9% of their income above a return threshold of £ 27,295 per year.
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IFS ‘Ben Waltmann said: “We said in April that the current policy on student loan interest rates was deeply flawed and would lead to a roller coaster of interest rates for graduates. It’s fantastic. see that, as we suggested, the government has decided to take steps to avoid the roller coaster.
“However, for most graduates, this announcement will have little or no effect on their repayments. Most undergraduate borrowers will probably never pay off their loans in full, so the rate interest never affects your repayments “.
But Larissa Kennedy, president of the UK National Student Union, said the new rates would still be “cruelly high” for many graduates.
“Ministers should prioritize urgent support for the cost of living here and now. We are listening to students who can’t even afford to keep taking the bus,” he said.