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Student Loan Interest Rate Capped at 7.3% in England

Posted by Calum Martin in ,

Image courtesy of Flickr, Creative Commons

The interest on student loan repayments in England is set to rise this autumn, albeit at a lower percentage than originally predicted.

As of March 2022, for students from England and Wales who started university in or after 2012, the student loan interest rate stands at 4.5%.

It was predicted, by the Institute for Fiscal Studies (IFS), that this figure would be rising dramatically to 12%. However, the government has now stated that this will be capped at 7.3%.

Michelle Donelan, the Higher Education Minister, commented on the level of the cap saying it would provide "peace of mind for graduates".

The National Union of Students however claims the cap is "still cruelly high".

For those currently at university, the interest rate on the loan is calculated by adding 3% to the retail price index measure of inflation.

Normally confirmed in August, the government brought forward the announcement to provide clarity to students. Ms Donelan further stated that: "The government has always been clear that where it can help with rising prices we will, and I will always strive for a fair deal for students."

NUS president Larissa Kennedy, claiming the rates were still too high, went on to comment: "While some graduates might breathe a sigh of relief that the interest rate is no longer in double figures, ministers should be prioritising providing urgent cost-of-living support here and now."

She added the government should "introduce rent protections, offer basic levels of maintenance support and announce a cost-of-living payment for all students."

The changes to interest rates do not change the amount that graduates will be paying back each month.

Senior research economist at the IFS, Ben Waltmann, said "for most graduates this announcement will have little or no effect on their repayments."

This is because many graduates will "likely never pay off their loans in full, so the interest rate never affects their repayments."

"Even for the typically high-earning graduates who do pay off their loans, very high interest rates from September to February would have been counterbalanced by very low interest rates further down the line, which now won't come to pass either."