According to the Institute for Fiscal Students, interest rates on student loans are set to be as high as 12% if the government does not intervene, leaving high-paying graduates to spend an additional £ 3,000.
Based on the post-2012 student loan interest rate retail price index (RPI), a recent RPI increase in March will charge 9% of recent graduates in England and Wales from September, the current rate is 1.5%.
IFS analysis shows that high-income graduates will be most directly affected by this increase, as they are more likely to repay their full debt within 30 years of graduation. Other graduates will see an outstanding balance after 30 years.
High-paying graduates – those earning more than £ 49,130 - are charged an additional three percentage points (v less earners), so their loan interest rates will increase from 4.5% to 12%. Those with a student loan of £ 50,000 will have to borrow an additional £ 3,000 by March 2023, when the interest rate will be revised.
Ben Waltman, a senior research economist at IFS, said: “If the government does not change the way students charge interest rates, interest rates will change dramatically in the next three years.
“The maximum rate will reach 12% between September 2022 and February 2023 and the minimum between September 2024 and March 2025 will be close to zero.
“It simply came to our notice then. Student loan interest rates should be low and stable, reflecting the cost of the government’s own loans. To avoid significant growth in September, the government urgently needs to adjust the way interest rate caps work. ”
The National Union of Students (NUS) said the increases were “cruel” and could add thousands of pounds to the graduate loan at a time when many were struggling.
“Students are not cash cows, and we cannot reap the rewards of this government’s backlash that has plagued millions of people,” said Hillary Gabi-Ababio, NUS vice-president for higher education, who wants the government to reverse the changes.
Bridget Phillipson, shadow education secretary, said the increase was another symptom of the crisis.
“Working graduates struggle with rising prices and the Chancellor’s increasing tax burden, and there is a risk of further pressure as interest rates rise,” Phillipson said.
A spokesman for the Department of Education said student loans were separate from commercial loans, linked to repayments with income, not interest rates or borrowed amounts. They insisted that borrowers earn below the, 27,275 threshold per year before tax they pay no.
“The IFS report clarifies that changes in interest rates have limited long-term effects on debt repayment, and the Office for Budget Responsibility predicts that the RPI will remain below 3% in 2024,” a DfE spokesman said.
“Regardless, the government has reduced interest rates for new borrowers so from 2023-24, graduates will never have to repay more than they borrowed on real terms.”
The government’s recent overhaul of student loans will extend payments from 2023 to 40 years instead of 30, and will bring a lower start-up threshold for loan repayments that could cost an additional £ 30,000 over the lifetime of low- and middle-income graduates.
Students who start the course in 2023 to 2024 and who earn £ 50,000 or more will save about £ 20,000 compared to the current loan system due to lower interest rates.