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(asked on 11th July 2017) - View Source

Question to the Department for Education:

Her Majesty's Government whether they intend to place a cap on student loans, in order to prevent any increase in the total debt arising as a result of the interest paid being less than the interest accrued in any one year.


Answered by
Baroness Sugg Portrait
Baroness Sugg
This question was answered on 9th August 2017

The student funding system removes financial barriers for anyone hoping to study and is backed by the taxpayer. A key feature of the scheme is that outstanding debt – including any interest accrued that has not been repaid by the end of the loan term – is written off after 30 years. This means that borrowers are protected if their repayments are less than the interest accruing on their accounts.

Monthly student loan repayments are linked to income, not to interest rates or the amount borrowed. Borrowers earning less than the repayment threshold (£21,000) repay nothing at all.

Once borrowers leave study, those earning less than £21,000 are charged an interest rate of RPI only. Post-study interest rates are variable based on income, tapering up from RPI for those earning less than £21,000 to RPI+3% for borrowers earning £41,000 and above. The system of variable interest rates based on income makes the system more progressive, as higher earners contribute more to the sustainability of the higher education system.

We have a world class student finance system that is working well, and that has led to record numbers of disadvantaged students benefiting from higher education. As ever, we will keep the detailed features of the system under review to ensure it remains fair and effective.

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