I am announcing today a temporary reduction in the maximum student loan interest rate following the continued reduction in the prevailing market rate for comparable unsecured personal loans.
In accordance with the Teaching and Higher Education Act 1998, where the Government consider that the student loan interest rate is higher than the prevailing market rate for comparable unsecured loans, we will take steps to reduce the maximum student loan interest rate.
The Government regularly monitor the interest rates set on student loans against the interest rates prevailing on the market for comparable loans.
Following the continued reduction in the prevailing market rate, I have today [9 December] laid legislation to cap the maximum post-2012 income contingent repayment undergraduate and the postgraduate income contingent repayment student loan interest rate in line with the prevailing market rate. The cap will come into effect from 1 January 2021 and last for a period of two months.
The reduction will be 0.1 percentage point on the maximum student loan interest rate to reflect the average market rates during the preceding monitoring period.
The maximum post-2012 undergraduate income contingent repayment student loan interest rate and the postgraduate income contingent repayment student loan interest rate will be 4.4% between 1 January and 28 February.
From 1 March 2022, the post-2012 undergraduate and postgraduate income contingent repayment student loan interest rates will revert to the standard rate +3%.
Further caps may be put in place should the prevailing market rate continue to be below student loan interest rates.
[HCWS462]