Soaring inflation means students and graduates could see their loan debts increase rapidly this year.
Interest on student loans will rise to as much as 12% from September this year. The rate is based on the Retail Price Index (RPI) rate in March - which has been rising due to the cost of living crisis - plus up to three percentage points.
RPI, which is one of a number of measures of inflation, hit 9% in March, due to the rising cost of energy, fuel, food, and clothes. It means student loan interest rates will rise from 4.5% to 12% for high earners and from 1.5% to 9% for low earners from September.
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Current students will also be charged 12% on their loans while they study. This rise in interest means those with a £50,000 debt will incur around £3,000 in interest over six months.
Other than seeing their loan amount spiral, the increase in interest rates doesn’t directly affect how much students pay per month, or, for many, how much they pay back over the full term.
For those in England and Wales on Plan 2 (those who started university after September 2012), from the April after they graduate, they pay back 9% of what they earn over the threshold of £524 a week, £2,274 a month, or £27,295 a year. That won’t change.
The debt is currently written off after 30 years, and many students won’t pay off the total plus interest by then. That means the interest rate rise only really hits those who are likely to pay off all of the debt, as it means more interest to clear.
What is likely to have more of an impact is that the threshold for repayments isn’t changing, it’s frozen at £27,295 until 2026/27. This means that if your pay goes up - which it may do if wages rise with inflation - you’ll end up paying more (or have to start paying).
See how much you are likely to have to pay towards your loan currently, and how much will you pay off over the term, with our calculator:
