Student loan interest rate to hit 12% in England

STUDENTS and graduates in England will pay up to 12% interest on their loans this autumn, according to the Institute for Fiscal Studies (IFS).

The rate will dip in March 2023, when a cap on the interest will kick in.

The IFS says a rollercoaster of interest rates lies ahead, but the long-term impact on repayments will not be large.

For students starting degree courses from 2023, the rate will be fixed at a lower level.

The interest rate on the loan for those currently at university in England is calculated by adding 3% to the retail price index (RPI) measure of inflation.

This is based on the changes in a range of costs over time, including housing.

Many working towards their degrees don’t realise interest is being charged during their studies until they get their first statement the year after leaving university.

After graduation they pay up to RPI+3% but that depends on earnings, so that is the maximum which is paid by the highest-paid graduates.

The RPI figure confirmed on Wednesday sets the interest rate for the coming academic year, which means it will leap from 4.5% this year to 12% from September 2022.

This is the highest rate seen since tuition fees for university students in England were raised to £9,000 in 2012.

The IFS says on current estimates that means interest is likely to fall back to about 7% in March 2023.