Student loan interest to rocket to 6.1%

Published by Adam Williams on 12 April 2017.
Last updated on 19 April 2017

The headline interest rate charged on post-2012 student loans in England and Wales will increase to up to 6.1% in September.

The interest charged is set at 3% plus the Retail Prices Index (RPI) inflation rate. With March’s RPI standing at 3.1%, as announced yesterday, this means students will be hit with interest charges of up to 6.1% from September.

All current students will pay this rate of interest until after they have finished their studies. Once graduated, those earning more than £41,000 pay the top 6.1% interest rate while those earning between £21,000 and £41,000 pay on a sliding scale of between 3.1% and 6.1%.

The current headline rate is 4.6%, meaning the interest rate will have increased by a third in one year.

This only affects students who started their course in England and Wales in 2012 or later.

How pre-2012 students are affected

However, post-2012 students are not the only graduates to be hit. If you started university before 1998, your interest rate will also increase.

These students are charged interest at the same rate as the RPI figure, meaning their rate will rise from 1.6% to 3.1% from September.

Meanwhile, those who started university in England and Wales or between 1998 and 2011 - or at any time after 1998 in Scotland and Northern Ireland - pay a rate of 1.25%, which will not change in September.

This interest rate is calculated using the Bank of England base rate (which is currently 0.25%) + 1% or the RPI figure, whichever is lower.

‘Interest on post-2012 loans needs reassessing’

Jake Butler of campaign group Save the Student says: “I was expecting an increase to student loan interest this year, but this is worse than expected. It really demonstrates that the interest on loans under the new system is far too high and should be reassessed.

“But (and this is a big ‘but'!) these figures should be taken with a pinch of salt. Students need to remember that it's highly unlikely they'll pay off their full loan debt before it is wiped 30 years after their graduation and no repayments need to be made until they earn over £21,000 per year after graduation.”

The exact amount students must repay depends on which part of the UK they were living in when they started their course, and whether they attended university in England, Scotland, Wales or Northern Ireland. To find out exactly what you owe, visit the Student Loans Company’s repayment website.

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My daughter wants to attend

My daughter wants to attend university in 2018. Will her university debt be taken into account when/if she applies for a mortgage later on?

Hi Karen, student debt is

Hi Karen, student debt is unique in that it does not appear on any credit report. It will also have no impact on the amount your daughter is able to borrow. This is unlike any other type of debt, where the mortgage lender may limit the amount they will lend if you have existing debts.

However, mortgage lenders will take into account all of your daughter's income and outgoings as part of their affordability tests. So she will need to demonstrate that she is able to pay back both her student loan and the mortgage repayments before being approved for the loan.

Hi,

Hi,
With Student Finance interest rates now at an outrageous 6.1%, is Moneywise considering an investigation/article of potential alternative methods to finance a university education? At 6.1% I can't see how the majority of students will be able to cover the annual loan interest, let alone start to drive down on the capital. This will sadly last for 30 years and impact on the ability of graduates to pay mortgages, save for a pension and potentially save anything. This could become the most significant financial issue for the current generation, noting that it is happening in parallel with a further increase in tuition fees (now £9250, up from £9000 last year)! I am a Moneywise magazine subscriber.