The interest rate on student loans in England is to be capped at 6.3% this autumn, the government says. It had been due to rise from the current 4.5% to 7.3% but is being altered to “align with the most recent data on market rates” for loans. Universities minister Andrea Jenkyns said she wanted to “provide support” amid the rising cost of living. But the Institute for Fiscal Studies said the change did “nothing at all to protect current students”. Student loan interest rates will be reviewed again in December. The interest rate on the loan for those currently at university in England is calculated by adding 3% to the retail price index (RPI) – a measure of inflation which indicates the rate at which prices are rising. The RPI figure confirmed in April set the interest rate for the forthcoming academic year. Meanwhile, the Institute for Fiscal Studies (IFS) predicted the maximum rate on student loans would jump from 4.5% to 12% from September this year.
Subsequently, in June, the government said the rate would be capped at 7.3% to provide “peace of mind for graduates”. Announcing the government’s latest move, which sets the cap at 6.3%, Ms Jenkyns said the further reduction in interest rates was intended to offer reassurance to anxious students. “We understand that many people are worried about the impact of rising prices and we want to reassure people that we are we are stepping up to provide support where we can,” she added.
No protection
The announcement from the government does not change the amount that borrowers repay each month – it changes the total amount that they owe. Ben Waltmann, a senior research economist at the IFS, said most graduates’ repayments would not be affected by the latest adjustment. “Only the minority of, mostly high-earning, graduates set to pay off their loans in full will ever actually benefit from this,” he said – adding that it would reduce a typical student loan balance by about £100 this autumn for recent graduates. “Importantly, this does nothing at all to protect current students from the rising cost of living.”
IFS analysis suggests that in the coming academic year, the real-term value of maximum maintenance loans – for students from the poorest backgrounds – will fall to its lowest level in seven years. Commenting on the research, Mr Waltmann said: “Unless the government changes course, students from the poorest families will be at least £100 out of pocket – per month.” For students starting degree courses from 2023, the interest rate will be fixed at a lower level.
