Interest rates have increased to 1.25% in June 2022. If you’re planning to go to university, taking into account this increase is important as it may impact the cost of your student loan.
Read on to discover what the interest rates on student loans is and how this has changed.
What are interest rates and how have they changed?
Interest rates are a charge for borrowing money, shown as a percentage of the amount of the loan. Rising interest rates impact the cost of borrowing, making loans on expensive purchases, such as mortgages and cars, more costly. This includes the cost of student loans.
The Bank of England sets the interest rate, and since December 2021 has increased it from 0.1% to 1.25%. This is the highest it’s been since 2009, and it’s expected to go even higher, reaching 2.75% by 2023:
UK student loan interest rates are set to reach £10 billion by 2023
For student loans, the interest rate increase is even bigger. Parliament’s recent report on student lending found that the maximum student loans interest rate for the academic year of 2022/23 will more than double — from 5.6% in 2020/21 to 12% in 2022/2023 to reflect the Retail Prices Index (RPI). This means the total interest UK students pay could reach over £10 billion.
How is the student loan interest rates increase impacting prospective students?
Naturally, prospective students are concerned about the rising student loan interest rates. In just two months, online searches relating to student loans have increased an average of 4,656%. Here are the top concerns among students:
Based on online search data from 13th April 2022 to 11th June 2022 compared to the previous period.
It’s yet to become apparent how university applications will be affected. This year, applications saw a slight dip, down 1% on 2021. Following the changes to student loan interest rates, we may see a decline in interest similar to that of 2012, when applications dipped 7.6% as a result of fee increases.
Try not to let student loan interest rates put you off going to uni
If you’re looking to apply for university, it’s understandable to be concerned about the changes to student loan interest rates. If you’re worried about paying for your studies, try to keep in mind the following:
- Student loan repayments only start once you’re on an annual salary of £27,295 (or £2,274 per month), and you don’t have to start the repayments until the April after you graduate at the very earliest. What you pay back depends on your earnings after university, so you won’t be paying back more than your salary makes affordable.
- Student loans are automatically repaid through your payroll once you start working, so you don’t have to worry about organising repayments or being chased by debt collectors.
- After 30 years, all your student loan debt is wiped, no matter how much remains outstanding. In fact, many people never repay their whole student loan.
- Failing to repay your student loan has no impact on your credit rating.
If you’re a Fresh resident and are looking for resources and support, please feel free to get in touch with your Fresh Residents' Team.