The government has confirmed that student loan interest rates will remain at 7.3% from September 2022
Normally, interest rates climb in lockstep with inflation, but at the current rate of 9%, student loan rates would have risen to 12%, despite the fact that the base rate is only 1.25 percent.
Student loan borrowers faced a 12 percent interest rate in September due to a spike in the rate of RPI due to global economic challenges, and the government has capped interest rates to a maximum of 7.3 percent to protect graduates.
The government has taken extraordinary steps to bring the interest rate decision forward, based on expected rates, in order to provide reassurance to student loan borrowers on Plan 2 (undergraduate) and Plan 3 (postgraduate) loans.
In comparison to 12 percent interest rates, a borrower with a £45,000 student loan outstanding would save roughly £180 per month in accumulated interest. Because monthly repayments do not fluctuate, this is based on the entire loan amount.
Income, not interest rates or the amount borrowed, is used to determine monthly student loan repayments. Unlike commercial loans, any borrowers who earn less than the applicable payback level will have their payments stopped.
Workers must repay 9% of their earnings above the repayment threshold, which in the UK is presently £27,295 per year, £2,274 per month, or £524 per week.
Income each year before tax | Monthly income before tax | Approximate monthly repayment |
£27,295 | £2,274 | £0 |
£28,000 | £2,333 | £5 |
£29,500 | £2,458 | £16 |
£31,000 | £2,583 | £27 |
£33,000 | £2,750 | £42 |
‘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 percent,’ said higher and further education minister Michelle Donelan.
I’d want to reassure you that this does not affect your monthly payback amount, and we’ve made this statement now to provide graduates more clarity and peace of mind.
‘We have cut future interest rates for those entering higher education in September 2023 and any students considering that next step at this time, so that no new graduate will ever have to pay back more than they borrowed in real terms.’
Student loans will be put on a more stable footing for future borrowers. Interest rates will be cut, as stated in February, so that new graduates will not repay more than they borrow in real terms starting in 2023/24.
Employers pay student loan repayments to HMRC through the tax system. Self-employed people pay back their loans using their self-assessment tax returns.
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