Ministers have intervened to cut student loan interest rates as inflation and the cost of living continue to soar – writes Christian Leeming 

 
 

In what is the second cut of the summer, the Department of Education today announced that the maximum rate applied from September will be 6.3% having previously been fixed at 7.3% 

Ministers stepped in in June, when according to the original formula of CPI + 3%, interest rates were on course to hit 12% by September. 

At 6.3% a borrower with a student loan balance of £45,000 would reduce their accumulating interest by over £200 a month compared with 12% interest on the total value of the loan. 

Loan repayments are calculated by income, rather than interest rates or amount borrowed with graduates paying the monthly equivalent of 9% of their income above a repayment threshold of £27,295 a year. 

Whilst broadly welcoming the move, the Institute for Fiscal Studies (IFS) said it was the wealthiest graduates who would benefit and warned it would do nothing to protect current students from the rising cost of living. 

Ben Waltmann, senior research economist at IFS said: ‘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. 

‘Unless the government changes course, students from the poorest families will be at least £100 out of pocket a month.’ 

Andrea Jenkyns, minister for skills, further and higher education, 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. 

‘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% and we are now reducing the interest rate on student loans further to 6.3%, the rate applying today, to align with the most recent data on market rates.’ 

The Student Loans Company said the change in interest rates will be applied automatically and that they would be reviewed again in December. 
 





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