Rising inflation triggers student loan interest cap

STUDENT loan interest rates will be capped starting from September in a move that will protect university graduates from rising inflation.

The Department for Education (DFE) announced the 7.3 per cent interest rate cap on repayments as graduates faced a rate of up to 12 per cent this autumn.

Higher earning graduates who left university in the past decade were warned last month of “eye-watering” rises by the Institute of Fiscal Studies that would push maximum interest rates from 4.5 per cent to 12 per cent.

The DFE has said a borrower with a student loan balance of £45,000 would reduce their accumulating interest by around £180 per month with the new cap in place. Graduates who left university after Sep 1, 2012, and took out a “Plan 2” loan, start their repayments once they are earning £27,295 a year.

The interest rate depends on how much they earn, and the inflation rate as measured by the retail prices index (RPI) for March each year – which has surged to nine per cent amid global economic pressures.

The Government caps student loan interest rates to ensure that they do not rise above market rates, but this was not due to take effect until next year. Michelle Donelan, the higher and fur- ther education minister said: “The government has always been clear that where it can help with rising prices we will, and I will always strive for a fair deal for students, which is why we have reduced the interest rate on student loans down from an expected 12 per cent.” She added: “I want to provide reassurance that this does not change the monthly repayment amount for borrowers, and we have brought forward this announcement to provide greater clarity and peace of mind for graduates at this time.”

Larissa Kennedy, the National Union of Students president, said the interest are “still cruelly high,” and urged the government to offer more financial assistance to students, adding: “Ministers should be prioritising providing urgent cost of living support here and now. We’re hearing from students who can’t even afford to continue getting the bus to therapy sessions.”