Students: Loans

(asked on 19th April 2022) - View Source

Question to the Department for Education:

To ask the Secretary of State for Education, what assessment he has made of the impact on graduate disposable incomes of the increase in student loan interest rates.


Answered by
Michelle Donelan Portrait
Michelle Donelan
Secretary of State for Science, Innovation and Technology
This question was answered on 25th April 2022

The government has not yet made a decision on what interest rates will be applied to student loans from September 2022. We will be considering all options over the coming months and will confirm in due course the rates to apply from 1 September.

Changes to student loan interest rates will not increase monthly student loan repayments. Monthly repayments are calculated as a fixed percentage of earnings above the relevant repayment threshold and do not change based on interest rates or the amount borrowed. If income is below the relevant repayment threshold, or a borrower is not earning, then they do not have to make repayments at all. Any outstanding debt, including interest accrued, is written off after the loan term ends (or in case of death or disability) at no detriment to the borrower. There are no commercial loans that offer this level of protection.

Over a lifetime, the Institute for Fiscal Studies has made clear that changes in interest rates have a limited long-term impact on repayments. Interest rates affect lifetime repayments only for those who will repay their loans in full within the loan term (or who come very close to doing so), principally high earners and/or those with small loan balances. Currently only 23% of borrowers who enter full-time higher education (HE) next year are forecast to repay their loans in full.

To further protect borrowers, the government, by law, must cap maximum student loan rates to ensure the interest rate charged on the loan is in line with market rates for comparable unsecured personal loans. The government monitors student loan rates against the Bank of England’s data series for the effective interest rates on new and existing unsecured personal loans.

We announced in February 2022 that we will be reducing interest rates for new borrowers and so from 2023/24, new graduates will not, in real terms, repay more than they borrow. Alongside our wider reforms, this will help to make sure that students from all walks of life can continue to receive the highest-quality education from our world-leading HE sector.

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