Advice for parents about the career options for their children

Student loan interest set to rise again to eye-watering 6.3%

18 April 2018

The government's announcement of a March RPI rate of 3.3% means students will see yet another increase in the interest on their loans.

  • New starters and current students will be charged 6.3% on their loans from September
  • 2012+ starters who have graduated will be charged anything from 3.3% to 6.3% (dependent on earnings)
  • 1998-2011 starters will see no change to their interest amount
  • Pre-1998 starters will see interest increase to 3.3% on their loans
  • Changes to RPI affect students from England and Wales
  • Save the Student's Jake Butler says students shouldn't panic: rising interest rates won't affect monthly repayments.

The interest figure to be charged on student loans is updated each September and based on March's rate of RPI from the same year. The RPI has ballooned from 1.6% in 2016, meaning students now accumulate far more interest on their loans.

If you started uni after 2012 (includes current students!)

  • The interest rate you currently accrue is up to 6.1%
  • In September it will rise to up to 6.3%
  • From September 2018 current students and new starters will be charged the maximum interest of 6.3% while at university
  • If you have graduated, the interest rate is calculated using RPI + up to 3% depending on your earnings. Those earning £45,000+ will be charged the full interest amount of 6.3% and those paid £25,000 or less will be on 3.3% interest, with anyone in between on a sliding scale
  • You don't start repaying your loan until the April after your graduation and you're earning more than £25,000 per year
  • Unless you start off with a graduate salary of higher than £28,000, it's unlikely you'll pay off your full loan and interest before it's wiped after 30 years anyway (calculated using Save the Student's loan repayment calculator).

If you started uni between 1998-2011

  • The interest rate you're currently charged is 1.5%
  • In September it will stay at 1.5%
  • This is because it's based on whichever rate is lowest out of RPI OR the Bank of England base rate + 1%.
  • The Bank of England base rate is currently 0.5%, so when you add the 1% it makes 1.5%
  • Those who studied at this time start paying back their student loan once they make over £18,330 per year (up from £17,775 last year).

If you started uni before 1998

  • The interest rate you're currently charged is 3.1%
  • In September it will increase to 3.3%
  • This is because it is based on the March RPI figure alone
  • The amount you must earn to repay will increase to £29,219

 Jake Butler, Save the Student's (www.savethestudent.org) money guru, comments:

"After the excellent news from the government promising to unfreeze the student loan repayment threshold and increase it from £21,000 to £25,000 - saving graduates around £360 a year - this will come as a bit of a blow.

Whilst the increase in interest is not as large as the jump we saw last year, it's yet another increase on an already astronomical percentage.

Theresa May recently announced that the student loan system is under review and in my opinion the way that the interest is calculated for these loans should be high on the agenda.

Having said that, it's important that students and graduates remember that this increase in the interest will likely just add even more to the pot of student loan debt that they'll end up never paying back.

As I always say, this is more of a psychological issue than a monetary one."