Loan interest

Student loan interest rate capped at 6.3%

The rate was set to rise from the current 4.5% to 7.3%, but is being changed to “in line with the most recent market rate data” for loans.

This is the second time the government has intervened to protect student borrowers against rising interest rates. It first capped rates in June.

The retail price index (RPI) inflation measure for each March is used to calculate student loan interest for Plan 2 (undergraduates) and Plan 3 (students) borrowers. postgraduate).

It applies to students from England and Wales who have taken out a loan for a course commencing on or after 1 September 2012 and currently stands at 4.5%.

It’s usually the RPI plus up to 3%, meaning these borrowers faced a mind-boggling 12% interest rate in September.

By setting an interest rate of 6.3% rather than the planned 12%, it will lower student loan interest rates by the highest amount on record. This will mean, for example, that a borrower with a student loan balance of £45,000 will reduce their accrued interest by around £210 per month compared to interest rates of 12%.

It is on the total value of the loan, as the monthly repayments do not change.

Interest rates only affect lifetime repayments for those who will repay their loans in full or are very close to doing so, high earners, and those with low loan balances. See the government repay your student loan guide for more information.

Growing Skills Minister Andrea Jenkyns said: “We understand that many people are worried about the impact of rising prices and we want to reassure people that we are stepping in to provide support. where we can.

“In June, we used expected market rates to anticipate the announcement of a cap on student loan interest rates from the expected 12% and we are now reducing the interest rate on student loans to 6.3%, the rate applicable today, to align with the most recent data on market rates.

“For those starting graduate school in September 2023 and all students considering this next step at the moment, we have reduced future interest rates so that no new graduate will ever have to pay back more than what he borrowed in real terms.”

Monthly student loan repayments are based on income rather than interest rates or the amount borrowed. Unlike commercial loans, repayments will stop for all borrowers who earn below the relevant repayment threshold.

A spokesperson for the Student Loans Company said: “Interest rate changes are applied automatically so customers don’t need to take any action. We encourage customers to use SLC’s online repayment service to regularly check their loan balance and repayment information, as well as to ensure that their contact information is up to date.