Relief for students as interest rates on loans are slashed to 6.3 per cent to protect graduates from soaring inflation
- New cap will bring the interest rate below RPI by the ‘largest amount on record’
- Student loan borrowers were facing a 12 per cent interest rate in September
- This was until a cap on interest rates of 7.3 per cent was announced in June
Interest rates on student loans have been further reduced to 6.3 per cent to protect graduates from rising inflation.
The Department for Education said the new cap, which comes into force in the autumn, will bring the interest rate below RPI (retail price index) by the ‘largest amount on record’.
With RPI soaring, student loan borrowers were facing a 12 per cent interest rate in September until a cap of 7.3 per cent was announced in June.
Universities minister Andrea Jenkyns said the additional reduction will mean ‘no new graduate will ever again have to pay back more than they have borrowed in real terms’.
Interest rates on student loans have been further reduced to 6.3 per cent to protect graduates from rising inflation
The figures are always finalised in August, and the cap has been adjusted in line with the prevailing market rate (PMR) for comparable unsecured personal loans, which is now 6.3 per cent.
It means a borrower with a student loan balance of £45,000 will reduce their accumulating interest by around £210 per month, compared to 12 per cent interest rates.
This is on the total value of the loan, as monthly repayments do not change.
Ms Jenkyns said: ‘We understand that many people are worried about the impact of rising prices and we want to reassure people that we are we are stepping up to provide support where we can.
‘Back in June, we used predicted market rates to bring forward the announcement of a cap on student loan interest rates down from an expected 12 per cent and we are now reducing the interest rate on student loans further to 6.3 per cent, the rate applying today, to align with the most recent data on market rates.’
Universities minister Andrea Jenkyns (pictured right with Liz Truss, left) said the additional reduction will mean ‘no new graduate will ever again have to pay back more than they have borrowed in real terms’
She added: ‘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.’
A spokesman for the Student Loans Company said: ‘The change in interest rates is automatically applied so customers don’t need to take any action.
‘We encourage customers to use SLC’s online repayment service to regularly check their loan balance and repayment information, as well as ensure their contact information is up-to-date.’
The September cap applies to English, Welsh and EU students who started an undergraduate course in the UK from September 2012.
It will also cover English and Welsh students who took out a postgraduate master’s loan from August 2016, or a postgraduate doctoral loan from August 2018, as well as EU students who started postgraduate courses from August 2016.
By law, student loan interest rates cannot exceed the PMR for unsecured personal loans.
The new interest rate of 6.3 per cent will apply between September and November.
Student loan interest rates will be reviewed again in December to ensure they remain aligned with market rates. They will continue to be capped in line with the forecast PMR until next August.
Meanwhile, in February the government announced that interest rates will be reduced from 2023/24 so new graduates will not, in real terms, repay more than they borrow.
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