Students in England, Wales, and Northern Ireland will face interest rates on their loans of up to 6.3%, up from the current 6.1% for anyone who started studying after 2012.
The change is a consequence of the increase in the retail price index (RPI) for last month to 3.3%, compared to 3.1% for the same month in 2017. The government links the interest rate on student loans to the RPI reading for March each year, plus 3%.
However, the hike has seen renewed criticism for the methodology behind calculating the interest rates, and the student loan system more generally.
Director of the Institute for Fiscal Studies, Paul Johnson, attacked the government’s use of the RPI on Twitter.
Government should not link these interest rates (or anything else) to the RPI – a measure of inflation which is overstated, which has had national statistics status withdrawn, and which is so flawed that the National Statistician has advised it should not be used. https://t.co/cLJ7HSzbfA
— Paul Johnson (@PJTheEconomist) April 18, 2018
Oxford SU told Cherwell: “Oxford SU is concerned about the effect that the rising interest rates will have our current, future and past students. Rising interest rates are particularly unmeritocratic as they penalise those who fail to pay off their student loans quickly, and will increase the number of graduates who cannot pay off their debt before the 30 years.
“The rising interest rates are especially damaging to our current students, who will pay the higher rate of interest on their student loan whilst they study. Punitive interest rates are yet another consequence of the marketization of HE, and act as a reminder of the need to reverse the current government’s policy.”
The National Union of Students (NUS) says that while the rise is small, it adds psychologically to the burden of debt for young people.
NUS vice-president Amatey Doku said: “Interest rates at 6.3% represent an increase of 0.2 [percentage points], which, although a seemingly small degree, adds to the huge psychological burden that debt has on many students and graduates.
“Absurdly high interest rates are only a small part of student debt problem – which already leaves students from disadvantaged backgrounds with up to £50,000 of debt, most of which is never paid off.
“The current funding model continues to represent a poor deal for students, their families, and the taxpayer.”
The government initiated a review of post-18 education earlier this year, which is due to conclude early next year. Ministers say the role of interest rates will be considered in the review.
A spokesman for the Department for Education said: “This change in interest rate will make no impact on a borrowers’ monthly repayments and very few people are likely to be affected by the increase.
“Once the loans are in repayment, only borrowers earning over £45,000 are charged the maximum rate. This ensures that they make a fair contribution to the system.”