Government plans to cap student loan interest rate, saving graduates hundreds of pounds

The student loan interest rate is currently set to skyrocket to 12 per cent by September

The government is planning to cap the skyrocketing student loan interest rate in a move that could save graduates hundred of pounds.

Last month it was revealed that by September 2022, the student loan interest rate will leap from 4.5 per cent to 12 per cent due to rising inflation.

In real terms this would mean that a high-earning recent graduate with an outstanding loan balance of £50,000 would be saddled with an extra £3,000 in interest between September 2022 and February 2023.

The higher interest rate will increase the amount of debt graduates will have to pay back, but will not affect their monthly repayments.

While the the i newspaper reported the government is planning to cap the interest rate, it’s not yet clear what the cap will look like.

Senior research economist at the Institute for Fiscal Studies (IFS) Ben Waltmann said: “We said that [the government] should intervene or change their policy. If they are now doing that to avoid this spike, I think that’s great news.”

From September 2023, the student loan system will change dramatically. Some graduates will face a £100k bill for their degrees that they won’t finish paying back until retirement age.

This is due to changes to the window in which students pay back their loans and the point at which they start doing so. You can read more about that here.

Featured image background: Unsplash (edited)

Related stories recommended by this writer:

• Universities should get freshers to create jabs, says former vaccine tsar

• University marking boycott: Start date announced as graduations hang in the balance

• These are the top Russell Group universities for promoting gender equality