The Institute for Fiscal Studies (IFS) issued a warning that the interest rate for student loans in England and Wales could rise from the current 4.5% to 12%.
The interest rate for university loans in England is calculated by adding 3% to the retail price index (RPI) measure of inflation. As the RPI has been skyrocketing, the Government decided to cap the interest rate for student loans to 7.3%. The cap was later reduced to 6.3%.
Those that took a student loan since 2012 and earn more than £49,130 are the most impacted by these changes.
In December, the interest rates on student loans will be re-evaluated. More importantly, the interest rate for students starting their degrees in 2023 will be fixed at a lower level.
“We have to cut future interest rates so that no new graduate will ever again have to pay back more than they have borrowed in real terms,” the statement reads. “This applies to both students who will begin higher education in September 2023 and those who are currently considering taking that next step.”
The way in which the interest rate cap is currently operating disadvantages borrowers with falling debt balances. More importantly, high interest rates may deter prospective students, especially if they are coming from low-income households, from going into higher education.