With university tuition fees in England now the highest in the world at £9,188, compared with £7,518 in the US, we wouldn’t blame anyone for having second thoughts about doing a degree. And now, there’s even more reason to think long and hard before you sign up for a student loan.
The student loan interest rate is due to rise by a third to a whopping 6.1%, thanks to an increase in inflation and the decline in the value of the pound since the Brexit vote, reported The Guardian.
This means students and graduates will be charged substantially more interest on their loans. Currently, new and current students are charged 4.6% interest, but from September this is set to rise to 6.1%.
Anyone who took out a student loan on or after 1 September 2012 who has now graduated will be charged between 3.1% and 6.1%, dependent on their income. Those who began university before 1998 will see the interest on their loans rise to 3.1%. Meanwhile, those who started university between 1998 and 2011 won’t see a change in their interest amount.
Staggeringly, the changes also mean that the interest rate on many graduates’ and current students’ loans will be more than 24 times the official Bank of England base rate.
Student loan interest rates are tied to the retail price index (RPI), which disadvantages students and graduates because it’s typically higher than the consumer price index (CPI), The Guardian reported. In March, the latest CPI inflation figure was 2.3%.
Jake Butler, from student money advice website Save the Student, said that while he expected student loan interest rates to increase this year, “this is worse than expected”. “It really demonstrates that the interest on loans under the new system is far too high and should be reassessed,” he said.
However, Butler pointed out that those who started university from September 2012 shouldn’t necessarily stress too much about the increase. “Students need to remember that it's highly unlikely they'll pay off their full loan debt before it's wiped 30 years after their graduation and no repayments need to be made until they earn over £21,000 per year after graduation.”
Butler highlighted that, in reality, the increase is “adding to the massive amounts of accumulative student loan debt that the government will never see”.
Students, campaigners and MPs have taken to social media to lament the fact that students appear to be paying the price for an outcome of Brexit that most of them weren’t responsible for.
And some young people said the rate hike has deterred them from going to university altogether.