Ministers have stepped in to cut student loan interest rates in England and Wales for the second time this summer as inflation and the cost of living continue to soar.
The Ministry of Education announced on Wednesday that the maximum rate will now be set at 6.3% from September. It was already due to be capped at 7.3%, after ministers intervened in June to bring it down from the 12% it would have reached in September, based on previous inflation figures plus 3%.
The DfE said the new rate of 6.3% would mean a borrower with a student loan balance of £45,000 would reduce their accrued interest by around £210 per month, compared to the 12% interest rate. It is on the total value of the loan.
Monthly student loan repayments are based on income rather than interest rates or the amount borrowed. Graduates pay 9% of their earnings above a reimbursement threshold of £27,295 per year.
The Institute for Fiscal Studies (IFS) welcomed the move, but said it would be the wealthiest graduates who would benefit and warned it would do nothing to protect current students from rising living costs. .
IFS Senior Research Economist Ben Waltmann said: “This is good news for graduates: recent graduates with a typical student loan balance will see around £100 less in interest added to their balance. in the first three months of the upcoming academic year compared to the policy announced in June.
“However, only the minority of mostly high-income graduates willing to repay their loans in full will really benefit; refunds for most graduates will never be affected. And even graduates who repay in full generally won’t see their repayments drop for decades.
“Most importantly, it does nothing at all to protect current students from the rising cost of living. Simply due to errors in the inflation forecast, student living aid is expected to hit its lowest level in at least seven years in the next academic year.
“Unless the government changes course, students from the poorest families will have at least £100 out of pocket a month.”
Andrea Jenkyns, Minister for Skills, Further and Higher Education, said: “We understand that many people are concerned about the impact of rising prices and we want to reassure people that we are stepping in to provide support where we can.
“In June, we used expected market rates to anticipate the announcement of a cap on student loan interest rates from the expected 12% and are now reducing the interest rate on student loans to 6.3%, the rate applicable today, to align with the most recent data on market rates.
A spokesperson for the Student Loans Company said the interest rate change would be applied automatically. Interest rates on student loans will be reviewed in December.