Ministers have stepped in to further rein in the amount of interest charged on English student loans, after rates rose more slowly than expected.
The Westminster government announced in June that it was capping the maximum rate of interest on student debt at 7.3 per cent, rather than the standard measure of the retail price index (RPI) of inflation plus 3 per cent, which would have given a rate of 12 per cent from September.
That decision was based the “forecast prevailing market rate” for comparable unsecured personal loans. But the actual market rate is now 6.3 per cent, so the Department of Education has tacked interest to this figure instead, it announced on 10 August.
The DfE said that, for a borrower with an outstanding balance of £45,000, this would reduce their accumulating interest by about £210 per month, compared with a 12 per cent rate – although monthly payments are unaffected, because these are based on earnings.
The cap, covering undergraduate and postgraduate loans, is expected to remain in place for 12 months.
However, it still represents a significant increase on the current maximum interest rate of 4.5 per cent.
“Back in June, we used predicted market rates to bring forward the announcement of a cap on student loan interest rates down from an expected 12 per cent and we are now reducing the interest rate on student loans further to 6.3 per cent, the rate applying today, to align with the most recent data on market rates,” said higher education minister Andrea Jenkyns.
Reforms that will apply for students starting higher education from September 2023 onwards will cap the student loan interest rate at RPI.
