UK Department for Education set a maximum interest rate of 6.3 percent on student loans. However, the rate has since risen to 6.9 percent and is expected to further increase to 7.3 percent in June.
UK Department for Education set a maximum interest rate of 6.3 percent on student loans. However, the rate has since risen to 6.9 percent and is expected to further increase to 7.3 percent in June.
The United Kingdom government has seen a rise in its revenue from the interest charged on student loans, resulting in higher borrowing costs for graduates, according to figures.
Graduates now face borrowing expenses nearly twice the rate set by the Bank of England, according to a report by The Guardian via Erudera.
Citing data from the Office for National Statistics, there is a significant surge in the total accrued interest on student loans, reaching £4.8 billion (Around $6 billion) in the 12 months ending in March. This is a substantial increase from the previous year’s amount of £2.3 billion (Around $2.9 billion) and represents the highest recorded figure during that period.
Last fall, the UK Department for Education set a maximum interest rate of 6.3 percent on student loans. However, the rate has since risen to 6.9 percent and is expected to further increase to 7.3 percent in June. The government said it is needed to align with the rates offered by high street banks on unsecured personal loans.
Projections indicated that students who commenced their education in the 2021-22 academic year could face an average debt of nearly £46,000 (Over $58,000) upon course completion. It is also estimated that only about 20 percent of full-time undergraduates starting in 2021-22 will be required to fully repay their loans.
Each year, nearly £20 billion (About $25,000) is loaned to around 1.5 million students in England with the current value of outstanding loans exceeding £180 billion (Over $227,000), it added.
The recent interest rate changes have had a significant impact on students who commenced their university studies before 2012, as the rate rose from 1.5 percent to five percent in the past year. For these students, the charged interest rate is determined by either the RPI inflation rate or the Bank rate plus one percent, whichever is lower.
Critics argued that these changes have placed students in financial distress, burdening them with substantial debt after graduation and widening the financial gap between generations and low-income students compared to wealthier families.
Ben Waltmann, an economist at the Institute for Fiscal Studies, believes that the current loan limit set by the government for post-2012 borrowers is too high. He urged ministers to establish stable and lower interest rates.
The interest rate for student loans issued before 2012 was raised to 3.2 percent by the Education Department in 2022.
