Graduates will save money as student loan interest rates slashed for second time to 6.3 per cent
Student loan interest rates previously stood at an eye-watering 12 per cent
The government is slashing the student loan interest for a second time amid the ongoing cost of living crisis.
Student loan interest rates were previously cut from 12 per cent to 7.3 per cent. Come September, they will now stand at 6.3 per cent.
The measure aims to protect graduates from rising inflation and save them a bit of cash.
But the Institute for Fiscal Studies said the changes do “nothing at all to protect current students from the rising cost of living” and will only benefit a minority of graduates.
According to the Department of Education, someone with an outstanding student loan balance of £45k will decrease the amount of interest they accrue every month by £210 when compared with the old 12 per cent interest rates.
This is the largest reduction in student loan interest rates on record.
Universities 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 up to provide support where we can.
“For those starting higher education in September 2023, and any students considering that next step at the moment, we have cut future interest rates so that no new graduate will ever again have to pay back more than they have borrowed in real terms.”
The Student Loan Company said borrowers do not need to do anything in light of the new changes as they will be applied automatically.
However, it’s not all good news.
Senior research economist at the Institute for Fiscal Studies Ben Waltmann told The Guardian: “This is welcome news for graduates: recent graduates with a typical student loan balance will see about £100 less in interest added to their balance over the first three months of the coming academic year compared with the policy as announced in June.
“However, only the minority of mostly high-earning graduates set to pay off their loans in full will ever actually benefit from this; most graduates’ repayments will never be affected. And even graduates who do pay off in full will typically not see their repayments fall for decades yet.
“Importantly, this does nothing at all to protect current students from the rising cost of living. Merely because of errors in inflation forecasts, student living cost support is set to reach its lowest level for at least seven years in the coming academic year.”
Featured image: Shutterstock / Algimantas Barzdzius