Question

To ask the Secretary of State for Business, Innovation and Skills, what the rationale is for setting the interest rate on the repayment of student loans under the new system at three per cent.

Interest rates on student loans vary according to a number of factors, including a borrower's level of earnings, and whether they remain in contact with the Student Loans Company to ensure they are repaying when they are eligible to do so.

The maximum interest rate for the post-2012 system is the Retail Price Index (RPI) figure plus 3%. The maximum rate applies whilst the borrower is studying; is the maximum interest rate for those borrowers earning £41,000 and over; and is the default interest rate for those borrowers who fail to keep in touch with the Student Loans Company.

Once a borrower is due to repay, a variable rate of interest will be charged, which is dependent upon income. Borrowers with an income of £21,000 or less will accrue interest at RPI. For a borrower with income greater than £21,000, a real rate of interest will be tapered in, reaching a maximum of RPI plus 3% at an income of £41,000 or more.