Student loan interest rates set to rise – see how much more you will pay
Student loan interest rates are usually set each September using the RPI rate from March of the same year
Millions of university graduates are set to see the interest rate on their student loans rise from September.
Student loan interest rates are usually set each September using the RPI rate from March of the same year.
This figure was today confirmed to be 4.1% so the vast majority of repayment plans will see their interest rate increase by this rate.
This includes graduates on a Plan 1, Plan 4 and Plan 5 student loan, of which the current rate is 3.2%.
For those with Plan 2 or Plan 3 postgraduate student loans, there will be a temporary 6% cap in place from this September following widespread anger over graduates being stuck with ballooning debts.
The interest rate for these plans is usually set at RPI plus up to 3%, with higher earners charged more.
But under this system, many students say their student loan debt is growing every year despite them making regular repayments.
Graduates begin to repay their Plan 2 student loan when they earn over £29,385 a year, although interest starts to accrue from the day the first payment is made to their university.
You repay 9% of your income over the threshold if you’re on a Plan 2 student loan and the debt is written off 30 years after the April you were first due to repay.
For Plan 1 student loans, the repayment threshold is £26,900 a year, while Plan 4, which is for borrowers in Scotland is £33,795 a year, and Plan 5 is £25,000 a year.
If you’re on a Plan 3 postgraduate loan repayment plan, the repayment threshold is £21,000 a year.
Tom Allingham, Student Loans expert at Save the Student, said: “While we welcomed the certainty given by the 6% interest cap on some Student Loans, it was always clear that it would have a limited impact – and today’s announcement underlines that.
“Any Plan 2 graduate earning less than £51,300 per year will still see their interest rate rise in September, and only those earning more than about £44,300 will actually benefit from the 6% cap.
“Meanwhile, anyone with a Plan 1, 4 or 5 loan will see their interest rate increase by 0.9 percentage points, as no cap has been introduced for them.
“It should be noted that the interest rate on Student Loans has no impact on the size of monthly repayments: these are only determined by a borrower’s salary, usually amounting to 9% of earnings above a threshold.
“The interest simply affects the overall level of debt and how long it takes to repay in full.”