How much students starting university could pay back…

How much students starting university could pay back in loans as interest rates rise

For many about to take the next step from A-Levels to university, concern over how much their education could cost is a burden. This comes as the cost of living crisis has caused the interest rates for student loans to rise by three percentage points.

This does not necessarily mean that all students will pay more, as the debt is written off after 30 years - soon to rise to 40 years. So only the higher earners after leaving university are likely to be the ones that get stung by the interest rates increase.

The Department for Education (DfE) says graduates and current students will save hundreds of pounds each year by the cap being lowered.

The Government has stepped in and capped interest rates at 6.3%. However, other than seeing their loan amount spiral, the increase in interest rates doesn’t directly affect how much students pay per month, or, for many, how much they pay back over the full term.

The student loan calculator will help by telling you how much you are likely to pay back currently:

However, the IFS has warned that the new lower cap still does "nothing at all to protect current students". Ben Waltmann, senior research economist at the IFS, told the BBC : "Only the minority of, mostly high-earning, graduates set to pay off their loans in full will ever actually benefit from this.

"Importantly, this does nothing at all to protect current students from the rising cost of living."

For those in England and Wales on Plan 2 (those who started university after September 2012), from the April after they graduate, they pay back 9% of what they earn over the threshold of £524 a week, £2,274 a month, or £27,295 a year. That won’t change.

What is likely to have more of an impact is that the threshold for repayments isn’t changing, it’s frozen at £27,295 until 2026/27. This means that if your pay goes up - which it may do if wages rise with inflation - you’ll end up paying more (or have to start paying).

For students who start university from September 2023, things are set to change. As the widget shows, compared to the current Plan 2, it may mean they pay back a lot more.

The interest rate for these loans will be frozen at RPI. However, the point at which the debt will be written off will increase from 30 years to 40 years, and the annual threshold will be set at £25,000 until at least 2026/27.

Not everyone is on Plan 2. Those who started university before September 2012 in England and Wales, and since 1998 in Northern Ireland are on Plan 1.

This group has to start paying back 9% of the money they earn over £20,195 a year (a figure that did rise in April). However, the loan is written off after 25 years.

They will also only see interest on their loan rise by 1.5%, as it’s set at RPI or the Bank of England base rate plus one percentage point, whichever is lower (which is definitely the base rate at the moment).

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