I am announcing today a temporary reduction in student loan interest rates to come into effect on 1 September 2022. This unprecedented action brings student loan interest rates in line with the forecast prevailing market rates for comparable unsecured personal loans.
In accordance with the Teaching and Higher Education Act 1998, when 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 bring student loan interest rates in line with the prevailing market rate.
The Government regularly monitor the interest rates set on student loans against the interest rates prevailing on the market for comparable loans.
Student loans are set with reference to the RPI for the month of March prior to the start of the academic year, as published by the Office for National Statistics. Following a significant increase in RPI in March 2022, I am announcing today—13 June 2022—a cap on the post-2012 undergraduate income-contingent repayment and postgraduate income-contingent repayment student loan interest rates in line with the forecast prevailing market rate for the 2022-23 academic year. Subject to the will of Parliament, the cap will come into effect from 1 September 2022 and last for a period of 12 months.
The post-2012 undergraduate income-contingent repayment student loan interest rate and the postgraduate income-contingent repayment student loan interest rate will be 7.3% between 1 September 2022 and 31 August 2023.
This intervention by Ministers means that in September 2022 post-2012 undergraduate student loan borrowers and postgraduate student loan borrowers face a maximum interest rate of 7.3% rather than 12%. This is the largest reduction of its kind on record.
No borrower will be paying more per month as a result of this change. Monthly student loan repayments are calculated as a fixed percentage of earnings above the relevant repayment threshold and do not change based on interest rates or the amount borrowed.
Subject to continued monitoring of the prevailing market rate, from 1 September 2023, the post-2012 undergraduate income-contingent repayment student loan interest rates will revert to variable rates of standard rate to standard rate plus 3% and postgraduate income-contingent repayment student loan interest rates will revert to the standard rate plus 3%.
Should the confirmed prevailing market rate turn out lower than forecast, a further cap will be implemented to reduce the plan 2 and the postgraduate loan interest rates accordingly.
Further caps may be put in place should the prevailing market rate continue to be below student loan interest rates.
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