The interest rate charged on student loans is rising again to an eye-watering 6.3 per cent for some graduates in England and Wales from September.
The interest on the most recent tranche of loans goes up from 6.1 per cent and is calculated by adding 3 per cent to the March retail prices index rate of inflation, which official data today revealed to be 3.3 per cent.
This will affect millions of current and former students, and follows the steep interest rate hike from 4.6 per cent to 6.1 per cent that came in last September.
Student loan interest rate rises again, to 6.3 from 6.1 per cent for some from September
Every September the rate of interest is updated and is based on the Retail Prices Index inflation rate from the March of the same year.
How much interest people pay on their student loans all depends on when they started their university degree and how much they earn upon graduation.
New students and current students will be charged 6.3 per cent on their loans from September, a rise from 6.1 per cent.
Graduates who started university after 2012 will be charged from 3.3 per cent to 6.3 per cent interest depending on how much they earn.
Those earning £45,000 or more will be charged the full interest rate of 6.3 per cent, while those earning £25,000 or less will be charged 3.3 per cent interest and the interest rate for those in between is set on a sliding scale.
Those who started university between 1998 and 2011 won’t see any change to their interest rate.
They will be paying 1.5 per cent and this will stay the same because it is set on whichever rate is lowest out of the RPI or the Bank of England base rate plus 1 per cent. This group only start paying back their loan when they are earning £18,330 per year ( a rise from £17,775 last year).
While those who started university before 1998 will be charged 3.3 per cent interest from September, a rise from 3.1 per cent. This interest rate is based on the March RPI figure alone and they will only begin repaying this when they earn £29,219 or more.
To find out exactly how much interest you owe, there is a Student Loan Calculator on the Save the Student website.
The interest rate for some loans is calculated by using the March RPI figures plus 3 per cent
Last October the Government confirmed that it would unfreeze the student loan repayment threshold and increase it to £25,000, from £21,000. This means graduates only start repaying it when they earn £25,000 and this is estimated to save graduates around £360 a year.
It was announced as part of a review into the entire the student loan system, the details of which have not yet been published.
Although the latest rise is not as steep as the increase last year, it still means millions of students will be faced with higher monthly payments.
The rate of 6.3 per cent is not only almost double the current 3.3 per cent of RPI, it’s also significantly higher than the rates on offer for a personal loan.
The best rate currently available for a personal loan of between £7,500 to £14,999 is 2.9 per cent, from Sainsbury’s Bank, however getting on will depend on a number of different factors, and most students would need significantly more to pay for tuition and living costs.
But while these loans are hard to compare, it is interesting to look at given the fact that student loans were designed as a cheap way for students to borrow money in order to pay for university fees and living costs.
Jake Butler, spokesperson for Save the Student, said: ‘After the excellent news from the government promising to unfreeze the student loan repayment threshold and increase it from £21,000 to £25,000 – saving graduates around £360 a year – this will come as a bit of a blow.
‘Whilst the increase in interest is not as large as the jump we saw last year, it’s yet another increase on an already astronomical percentage.
‘Theresa May recently announced that the student loan system is under review and in my opinion the way that the interest is calculated for these loans should be high on the agenda.
‘Having said that, it’s important that students and graduates remember that this increase in the interest will likely just add even more to the pot of student loan debt that they’ll end up never paying back. As I always say, this is more of a psychological issue than a monetary one.’