The expected increase in the interest rate on student loans in England this autumn will be lower than initially projected.
Contrary to the Institute for Fiscal Studies’ prediction of a rise in the repayment rate on student loans from the current 4.5% to 12%, the government has announced that the rate will be capped at 7.3%.
According to Higher Education Minister Michelle Donelan, the established cap level will offer “peace of mind for graduates.”
However, the National Union of Students expressed the opinion that the cap was still “cruelly high.” The Institute for Fiscal Studies (IFS) welcomed the announcement but noted that it would likely have minimal impact on the repayment obligations of most graduates.
For students currently enrolled in universities in England, the interest rate on the loan is determined by adding 3% to the retail price index (RPI) measure of inflation.
The interest rate for the upcoming academic year is based on the April confirmed RPI figure. As per the Institute for Fiscal Studies (IFS), the maximum interest rate on student loans will increase from 4.5% this year to 12% starting from September 2022.
In a departure from the usual practice of confirming student interest rates in August, the government has chosen to make this announcement earlier in order to offer graduates greater clarity and peace of mind, according to Ms. Donelan.
In addition, Ms. Donelan reiterated the government’s commitment to addressing the impact of rising costs and emphasized her ongoing efforts to seek a fair and equitable solution for students.
Despite the announcement, Larissa Kennedy, the NUS president in the UK, expressed her dissatisfaction, stating, “These interest rate figures remain unreasonably high and continue to pose a burden on students.”
In response, Kennedy emphasized the need for immediate cost-of-living support, stating, “Rather than focusing on the interest rate alone, ministers should prioritize addressing the pressing need for financial assistance to cover living expenses.”
Kennedy further suggested that the government implement rent protections, provide essential maintenance support, and introduce a cost-of-living payment for all students.
The government’s announcement does not impact the monthly repayment amount for borrowers. However, for students commencing degree courses from 2023, the interest rate will be set at a reduced level.
While Ben Waltmann, senior research economist at the IFS, praised the government’s decision to take action, he noted that for the majority of graduates, this announcement would have minimal impact on their loan repayments.
According to Ben Waltmann, since most individuals with undergraduate loans are unlikely to fully repay them, the interest rate has little impact on their repayment obligations.
Ben Waltmann also noted that the previously anticipated high interest rates from September to February would have been offset by lower interest rates later on for high-earning graduates who do repay their loans. However, with the capped interest rate, this balance will no longer be realized.
Source : bbc.com
