The government will cap student loan interest rates for current graduates to protect them against rising inflation.
A rise in the RPI rate due to global economic pressures meant student borrowers faced a 12% interest rate in September and the government stepped in and capped interest rates at a maximum of 7.3 % to protect graduates.
The government will seize every opportunity to protect the public against the rising cost of living and global economic pressures. Confirmation of interest rates is usually made in August, but the government has taken unprecedented steps to move the decision forward, based on expected rates, to reassure student borrowers about Plan 2 loans (undergraduate ) and plan 3 (third cycle).
This is the biggest reduction in student loan interest rates on record and will mean, for example, that a borrower with a student loan balance of £45,000 will reduce their accrued interest by around £180. per month, against 12% interest rate. It is on the total value of the loan, as the monthly repayments do not change.
Higher and Further Education Minister Michelle Donelan said:
The government has always been clear that where it can help drive up prices we will, and I will always strive to get a fair deal for students, which is why we have reduced the rate interest on student loans from the expected 12%.
I want to reassure that this does not change the monthly repayment amount for borrowers, and we have brought this announcement forward to provide more clarity and peace of mind for graduates at this time.
For those starting higher education in September 2023 and all students considering this next step at the moment, we have reduced future interest rates so that no new graduate will ever have to repay more than what he borrowed in real terms.
Monthly student loan repayments are based on income rather than interest rates or the amount borrowed. Unlike commercial loans, repayments will stop for all borrowers who earn below the relevant repayment threshold.
For future borrowers, student funding will be put on a more sustainable footing. As announced in February, interest rates will be reduced so that from 2023/24 new graduates do not repay, in real terms, more than they borrow. Along with broader higher education reforms, this will help ensure that students from all backgrounds can continue to receive the highest quality education from our world-leading higher education sector.
This comes with a package of support measures worth £37billion to help those facing rising costs of living, including £400 for all households on their energy bills , targeted support to vulnerable households for costs including food and energy, and changes to Universal Credit, National Living Wage and National Insurance thresholds, so people keep more of what that they win.