Student loan interest rates about to soar

Students will face a higher interest rate on their loans after the latest rise in inflation.

The current rate of 0 percent will see a dramatic jump to 4.4 percent for those who took out loans prior to 1998, and a similar rise is likely for those with more recent loans. The rise is likely to place a significant burden on new graduates.

The rise in interest will come into force from 1st September when the Student Loans Company resets interest payable on its loans, which is based on the Retail Price Index (RPI). RPI rose to 4.4 percent in March, its highest level since 2007.

For some graduates on low incomes, the new rate of interest will be adding more to their loan every month than they are able to repay.

The Student Union’s Education Officer, Sumaiya Khaku told the _Boar_: “Any increase in student debt is greatly worrying. For some people the rate of interest will be higher than their payments and so the loan would grow even when they start to pay it back. We live in a time where graduates are faced with an unfavourable employment market and this just means that people will be in their 50s before they are free of student debt.”

Interest rates are set for a year, meaning that the 4.4 percent rise will last until next year even if the RPI changes.

The president-elect of the National Union of Students, Aaron Porter, told the Guardian: “Clearly the rise is just further proof that the current system is not working.”

A first year History student expressed their concerns: “The low interest rates on student loans were an attractive aspect of entering university. I now face increased debt and more pressure to pay off my loan quickly after I graduate.”

The average interest rate payable on student loans has been 2.9% since 1990. For those whose loans were taken out prior to 1998, the interest payable is linked only to the RPI. For those with more recent loans, the rate is set based on either the RPI or Bank of England rates plus 1 percent, whichever is lowest.

The Student Loans Company told the Guardian that they were unable to say what interest rate more recent graduates will pay from September, but as the Bank of England rate is also tied to inflation, it too is likely to rise. The rate will be announced in August.