Worries are spreading amongst not only students, but MPs in the UK Government, surrounding the probable rise in interest rates for student loans later this year, which is likely to reach 12%.
There are concerns that young prospective students who have the academic qualifications to study at university in the UK will be repelled by the idea of paying off large debts for many years to come. This is because higher-earning graduates are likely to now face paying thousands of pounds in extra student loan debt.
The student interest loans have been a particular point of contention in the UK Government in recent months, with former Business Secretary and Universities Minister Greg Clark telling the Guardian that high interest rates risked deterring graduates from getting skills that were badly needed.
Clark said that “A 12% interest rate on student loans is an outrageous charge that the government must prevent from happening. It is a breach of what students expected ? that interest on loans would be no higher than market rates. And it risks frightening off new students from entering higher education.”
Former Universities Minister, Chris Skimore, further added that “The additional perceived debt burden created by interest on loans is putting many young people off even thinking about university, when this could be a route for transforming their lives.”
At present, graduates in England and Wales who took out student loans after 2012, earning more than ?49,130 a year, are the ones facing the 12% maximum rate. This is because in the UK, student interest rates are linked to the current RPI inflation rate.
It is important to note that there have been suggestions for a cap on interest payments next year. This means that the spike in repayments should only be temporary, however, there are still calls for an immediate cap to be imposed on the interest payments for graduates.
Further, it must also be remembered that student loan repayments are calculated by a graduate’s income, as opposed to interest. As such, if the graduate is not earning, or is earning less than the income threshold for their loan, then they will not be required to pay anything back.
Richard Allan of funding platform CapitalBean.com, commented: “Student loans are expensive at the best of times and often leave graduates with a debt for more than a decade. Even when they are students, they typically have to live quite modestly. Whilst the USA is writing off student debt for millions of Americans, we are potentially increasing rates and this paradox will certainly be a step backward.”
Many have called on the UK Government as they argue that the 12% interest rates could lead to many having to remortgage their properties, or even extend their mortgages in some instances, so that they can service their student debt. This comes in light as the Mortgage Broker, Tembo, recently was pushed to remove their online advert encouraging people to remortgage so that they would be able to repay their student loans in the UK.
According to a Department of Education spokesperson, “For future students, the government has cut interest rates ? so from 2023-24, graduates will never have to pay back more than they borrowed.”
