When the current student loan system was introduced in 2012, it probably seemed like a good idea. This illusion was encouraged by an inflation rate that year of 3.2%, which had just fallen from 5.2% the previous year. This was followed by a period of generally low inflation – in the years from 2012 until the recent inflationary spiral, the pound had an average inflation rate of 2.32% – and the UK benefited historically low interest rates.
Thus, the student loan system, which is inextricably tied to inflation rates, was able to lodge itself in academia during a period of low inflation that gave it a deceptively innocuous patina. Now suddenly, with inflation soaring, its destructive potential is exposed. According to the Institute for Fiscal Studies, students who have received Plan 2 loans from Student Finance England (SFE) since 2012 will now have to pay higher interest rates than homeowners paying off mortgages.
The maximum rate on state-funded loans for tuition fees and maintenance costs paid by those earning £49,130 or more will rise from 4.5 per cent to 12 per cent, equivalent to £3,000 of interest charges over a period of six months. It is the highest interest rate charged on student loans since the questionable decision to raise tuition fees to £9,000 in 2012.