Higher interest on loans will force many students to leave studies

Under present plans, English and Welsh graduates who took out a student loan after 2012, and earn more than £49,130 a year, face the 12% maximum income rate. That is because the rate is linked to the current RPI inflation rate. Their current interest rate is 4.5%. The interest rates for low earners will rise from 1.5% to 9%.
 
This means that for a typical debt of about £50,000, a high-earning recent graduate would incur about £3,000 in interest over six months. The added interest does not affect the level of monthly repayments. A planned cap on interest payments next year means that the spike should be temporary, but many people now want a cap imposed immediately.
 
Senior Tories are sounding the alarm over the “outrageous” interest rates to be applied to student loans later this year. Former ministers and MPs are calling for the government to step in and prevent the increases. They say some young people who have the ability to take up a university place will be put off by the idea of repaying a large, expensive debt for years.
 
The threat of 12% interest rates has led to accusations that some are being persuaded to remortgage, or to extend their mortgage, to service their student debt. A department for education spokesperson said: “Monthly repayments will not increase for students if there is a change in student loan interest rates. Repayments are linked to income, not interest rates. The government will confirm the level of student loan interest rates will be set soon. For future students, the government has cut interest rates – so from 2023-24, graduates will never have to pay back more than they borrowed.”