Student loan interest rates set to rise by 33 per cent
Increased inflation sends grads spiralling further into debt
Graduates are set to pay sky high interest rates on their student loans as inflation soars.
Interest on student loans are set to rise by a massive 33 per cent as a result of soaring inflation. Student loan interest lies somewhere between RPI (an index of inflation) and RPI plus three per cent depending on your earnings. The rate increase will apply to all students who enrolled at university after 2012, meaning all current students will be affected by the rate rise.
Today’s figures for March put RPI at 3.1 per cent. This means that graduates will be forced to pay up to 6.1 per cent interest on their student loans. That’s 24 times the Bank of England base rate, four times the price of a fixed-rate mortgage and twice the cost of a personal loan.
Even lower-earning grads don’t get off lightly. If you earn below the minimum repayment threshold of £21,000, your loan will still accrue interest at a rate of 3.1 per cent.
According to Jake Butler from Save the Student these figures are “Worse than expected” and he warned students that “it’s highly unlikely they’ll pay off their full loan debt before it’s wiped 30 years after their graduation.” Effectively, thanks to the government decision, we will be paying off our loans for most of our adult lives.
The Department for Education tried to calm irate students down by stating that “no individual will see their repayments rise as a result of interest rates increasing.” Yet if interest rates rise, students will be burdened with debt over a longer period. Hence we’ll have to pay more.
They also claimed that the current system “is sustainable and fair, with affordable loan rates based on income.” However, Jack Butler pointed out that “this increase is just adding to the massive amounts of accumulative student loan debt that the government will never see.” Graduates are being driven so deep into debt that the government will never see their loans repaid.
For context, the average interest rate on a federal student loan in the United States is 3.76 per cent. It’s clear the system’s broken when we’re forced to pay even more than America’s famously indebted students. Not to mention the fact that many of our European neighbours don’t charge their students for university at all.
One Cantab set to be affected by the rate rise told the Tab: “I just think it is outrageous that the interests of students are not being protected. It was recently revealed that higher education in England is now one of the most expensive in the world – increasing interest rates will simply put current students into insurmountable debt, and in line with other measures such as cutting maintainable grants could deter students from worse off backgrounds from applying to university, which is quite frankly disgusting”
It’s a knockout victory for the Student Finance, and a crushing blow to the British student.