As per official figures, the UK government is charging almost twice the amount of interest on student loans set by the Bank of England.
As per the data revealed by the Office for National Statistics, the interest accrued on student loans inflated to £4.8 billion in the 12 months to March from £2.3 billion the previous year.
Despite the minister’s intervention to cap the rate of interest on student loans in England and Wales, inflation has hit a record high for 40 years, preventing borrowing costs from increasing substantially.
The Department for Education set a maximum interest rate of 6.3% on loans last autumn, which has currently increased to 6.9% and is projected to increase to 7.3% from the beginning of June. Concerning unsecured personal loans, ministers want to reflect an increase in the going rate on the market.
It has been predicted that the number of students starting their course in 2021–22 will have an annual debt of £45,800 when they complete their course. The government anticipates that roughly 20% of full-time graduates are expected to repay the entire amount by 2021–22.
In England, almost £20 billion in student loans are given out each year to around 1.5 million students, with more than £180 billion in outstanding debt.
The limit, which was introduced during the last few months of Boris Johnson’s premiership, stopped an increase to 12%. Before the Russian invasion of Ukraine, the retail pricing index (RPI), a measure of inflation, had been increased by 3 percentage points, and this was used to compute rates.
Ministers said that the cap was the largest-scale initiative in history to reduce student loan interest rates and that it was designed to get a “fair deal for students” to prevent further hardship brought on by the cost of living.
However, the government cap still reflects a huge increase from a year ago, when student loan interest rates were close to 4.5%, and is over double the Bank of England’s current base rate of 4.25%.
With a far larger relative increase from 1.5% to 5% over the previous year, interest rates for students who began their studies before 2012 have also increased significantly. These students will be charged either the bank rate + 1% or the lowest RPI inflation rate.
Critics claim that students are graduating from college with staggering amounts of debt, fueling a widening wealth gap between generations and between the offspring of lower-income parents and those from higher-income families.
The Institute for Fiscal Studies’ economist Ben Waltmann criticized the present government restrictions on loans made after 2012 as being “too high” and encouraged ministers to set interest rates that would reflect the government’s own cost of borrowing.
“Interest rates that are higher than the government’s cost of borrowing can discourage some prospective students from going to university, even when that would be the best choice for them and for society,” he revealed.
“They also create an unfairness between those paying off loans and those whose parents supported them, perhaps by borrowing more cheaply through a mortgage.”
A DfE spokesperson stated, “University is an investment for both students and the taxpayer.”
“From the 2023/24 academic year, we have cut interest rates to RPI only so that, under these terms, new borrowers will not repay more than they originally borrowed when adjusted for inflation. Through these reforms, more than half of new borrowers will repay their loans in full, compared to the current rate of 20%.”
- Published By Team Timeswire