‘Daunting time’ for graduates as interest rates hit student loans

University graduates are struggling to pay off their student loans due to a massive increase in interest levels.

Student loans repayments are at an all-time high, with the interest rates for different repayment plans all rising – the interest rate for a Plan 4 repayment plan is currently 6.0%.

The concerns come as the Bank of England increased interest rates for the 14th time since December 2021, with the rate rising from 5% to 5.25%, which could see an increase in mortgage repayments.

Rebecca Smith, who previously worked as a nurse, made the decision to go back to university to train to become a paramedic at Glasgow Caledonian University in 2017 and is now finding the loan repayments difficult due to the higher interest rates.

During her time at university, she took out a student loan, as she had no bursary and needed the money for rent, and also worked part-time.

She is now in the process of paying back her student loan, but says that, due to inflation, she has hardly paid back any of the debt at all.

Smith said: “When I started paying back my student loan it was 1% but, with the rate of inflation, it’s now at 5.5% so it’s crept up. If I pay something like £250 a month, which is a big chunk of my wage, it actually only pays about £100 of my debt. I know my debt is roughly £20,000 and other people have a bit more and some have a bit less but it’s for my three years. It started off at around £22,000, but I’ve paid off some of it.

“We got the back-pay for the NHS but, personally, when I got back-pay, for my student loan I paid almost £500 that month. I didn’t see any of my back-pay, it’s just the rate of inflation with it. I actually came off with less money when I got that.”

Smith is not alone in her worries. University of West of Scotland student Ellie Miller also admits that she finds the prospect of paying back her student loan daunting when she graduates from her business degree next year.

The 24-year-old said: “Originally student loans were around 1% or 2% in interest, but now it’s so much higher. I graduate next year and I know when I get a job that I’ll have to start paying it back, which is a bit of a worry for me and a lot of people in my year. With the costs of everything going up, it’s a very daunting time.”

The Students Award Agency Scotland confirmed the Scottish Plan 4 loans have increased to 6% as per requirements stipulated in legislation.

Interest rates for the loan had steadily increased from 2020, from 1.1% interest on Plan 4 loans to the current 6.0%. Those in England paying back loans are currently at a higher rate of 7.1%

The average student debt of a Scottish student who graduated in 2022 is £15,000, with repayments of student loans only beginning after the completion of a course and a salary threshold of £27,660 has been reached.

Loans can be cancelled 30 years after repayments have begun.

Figures released by the House of Commons Library, and commissioned by the Scottish National Party, show that in Scotland there has been an increase of student debt – from £2,620 in 2000 to £14,770 in 2022.

Scottish Liberal Democrat education spokesperson Willie Rennie said: “Students are facing major question marks over how to support themselves.

“The Scottish Government must repair the system of bursaries and grants, helping students secure a minimum income level without forcing them into more debt.”

The Scottish Government said: “Scottish borrowers are currently charged lower interest rates than most borrowers from the rest of the UK, where interest on student loans is as high as 7.1%.

“Our ongoing commitment to free tuition fees for Scottish-domiciled students studying at college or university here, ensures that access to further study is based on the ability to learn and not the ability to pay. The average student loan debt for Scottish students on entering repayment is around a third of the debt racked up by their English peers.”