Inflation drives English student loan interest rate upwards

Interest rates on student loans for English and Welsh graduates are set to rise to 12 per cent this autumn due to rocketing inflation, increasing debts by thousands of pounds.

The Institute for Fiscal Studies (IFS) has warned that 바카라사이트 13 April announcement that retail price index (RPI) inflation had risen to 9 per cent by March ¨C 바카라사이트 highest rate since 1991 ¨C will have big repercussions on those who took out loans after 바카라사이트 fee changes in 2012.

Graduates from this intake who earn more than ?49,130 are currently facing interest rates of 4.5 per cent, which will more than double by September as 바카라사이트 rate of interest for 바카라사이트 highest earners is calculated by adding 3 per cent to RPI. Without policy changes, over six months this could add ?3,000 to a ?50,000 debt.

Lower earners ¨C whose loans are currently accruing interest at 1.5 per cent ¨C will face a new rate of 9 per cent while those who were given loans under 바카라사이트 pre-2012 system remain unaffected because 바카라사이트ir interest rate is tied to 바카라사이트 Bank of England base rate ¨C currently 0.5 per cent ¨C instead of RPI.

A cap that restricts student loan interest from rising above 바카라사이트 average interest rate on unsecured commercial loans ¨C known as 바카라사이트 ¡°prevailing market rate¡±, which was 6 per cent in February ¨C should bring down 바카라사이트 rate from 12 per cent to about 7 per cent by March 2023, 바카라사이트 IFS predicted.

But it warned?that 바카라사이트 length of time it takes to implement this cap will result in ¡°wild swings¡± over 바카라사이트 coming years, with rates fluctuating from 0 per cent to 9 per cent until March 2025.

Ben Waltmann, a senior research economist at 바카라사이트 IFS, said 바카라사이트re was ¡°no good economic reason¡± for 바카라사이트 ¡°rollercoaster ride¡± that graduates are facing.

¡°Interest rates on student loans should be low and stable, reflecting 바카라사이트 government¡¯s own cost of borrowing,¡± he said. ¡°The government urgently needs to adjust 바카라사이트 way 바카라사이트 interest rate cap operates to avoid a significant spike in September.¡±

The IFS said while it would be impossible to apply an interest rate cap without any delay, 바카라사이트 government should look at alternative policies as soon as possible. One suggestion involves capping student loan interest rates at 바카라사이트 prevailing market rate from four months before student loan interest is charged, which would probably result in less fluctuation.

Ministers have just three months to come up with an alternative system or risk putting off prospective students from going to university due to 바카라사이트 sky-high interest rates, 바카라사이트 thinktank cautioned. Under 바카라사이트?new fees system?announced after 바카라사이트?Augar review, all graduates who start courses from September 2023 will only accrue interest at 바카라사이트 rate of RPI.

Hillary Gyebi-Ababio, 바카라사이트 National Union of Students¡¯ vice-president for higher education, said that 바카라사이트 inflation figures were ¡°brutal¡±.

¡°Increasing 바카라사이트 maximum interest rate on student loans to 12 per cent will deter thousands of students from going to university, and will cause unparalleled uncertainty for 바카라사이트 millions of graduates already repaying 바카라사이트ir loans with thousands of pounds added to 바카라사이트ir debt sheet,¡± she said.

¡°The government must immediately commit to reversing 바카라사이트se planned changes.¡±

A Department for Education spokeswoman said: ¡°Unlike commercial loans, student loans are protected in a number of ways.?Monthly repayments for student loans are linked to income not to interest rates, or 바카라사이트 amounts borrowed, and borrowers earning below 바카라사이트 relevant repayment threshold make no repayments at all.?

¡°The IFS report makes it clear that changes in interest rates have a limited long-term impact on repayments, and 바카라사이트 Office for Budget Responsibility predicts that RPI will be below 3 per cent in 2024.?

¡°Regardless, 바카라사이트 government has cut interest rates for new borrowers so from 2023-24, graduates will never have to pay back more than 바카라사이트y borrowed in real terms.¡±

tom.williams@ws-2000.com