Graduates to be hit with ‘brutal’ student loan interest rates of up to 12%

theguardian.com:

Interest rates on student loans are set to soar to as high as 12%, costing higher-earning graduates an extra £3,000 unless the government intervenes, according to the Institute for Fiscal Students.

Interest rates on post-2012 student loans are based on the retail prices index (RPI), with the rise in the RPI in March meaning most recent graduates in England and Wales will be charged 9% from September, up from the current rate of 1.5%.

The IFS analysis found that higher-earning graduates will be most directly affected by the increase, since they are more likely to repay their entire loan within 30 years of graduation. Other graduates will see any outstanding balance wiped after 30 years.

Highly paid graduates – those earning more than £49,130 – are charged an additional three percentage points (v low earners), so interest rates on their loans will rise from 4.5% to 12%. Those with student loans of £50,000 will accrue an extra £3,000 in debt until March 2023, when interest rates are next revised.

Ben Waltmann, senior research economist at the IFS, said: “Unless the government changes the way student loan interest is determined, there will be wild swings in the interest rate over the next three years.

“The maximum rate will reach an eye-watering level of 12% between September 2022 and February 2023 and a low of around zero between September 2024 and March 2025.

“There is no good economic reason for this. Interest rates on student loans should be low and stable, reflecting the government’s own cost of borrowing. The government urgently needs to adjust the way the interest rate cap operates to avoid a significant spike in September.”

The National Union of Students (NUS) said the increases were “brutal” and likely to add thousands of