Interest on student loans to be capped at 7.3 per cent

Interest on student loans to be capped at 7.3 per cent: Government intervenes to protect graduates from rampant inflation after rates were set to soar to 12 per cent this year

  • Interest rates on student loans have been capped at 7.3 per cent as inflation bites
  • Move will save borrowers hundreds of pounds in accrued interest on their debt 
  • Interest rate on student debt could have soared to 12 per cent in September

Interest rates on student loans have been capped at 7.3 per cent to protect graduates from rampant inflation.

The Government has intervened after a surge in the retail price index (RPI) meant that the interest rate on student debt could have soared to 12 per cent in September, because the rate is set at RPI plus 3 per cent. 

The move will save borrowers hundreds of pounds in accrued interest on their debt.

The Department for Education said it was ‘the largest scale reduction of student loan interest rates on record’. 

Michelle Donelan, the higher and further education minister, (pictured) said the government will always strive for a fair deal for students

The Government has intervened after a surge in the retail price index (RPI) meant that the interest rate on student debt could have soared to 12 per cent in September, because the rate is set at RPI plus 3 per cent

It will mean someone with a balance of £45,000 would accumulate interest of about £180 a month less than if the rate had risen to 12 per cent. 

This is on the total value of the loan, as monthly repayments do not change.

The cap applies to English, Welsh and EU students who started an undergraduate course in the UK after September 2012 and some who took out postgraduate loans after 2016.

The Government has said that interest rates will be reduced from 2023-24 so that new graduates will not, in real terms, repay more than they borrow.

Michelle Donelan, the higher and further education minister, said: ‘The Government has always been clear that where it can help with rising prices we will, and I will always strive for a fair deal for students, which is why we have reduced the interest rate on student loans down from an expected 12%.

Interest rates will be cut for new students so their loan balance rises with the rate of inflation.

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