England student loan interest rate capped at 6.3%

The interest rate on student loans in England is set to be capped at 6.3% this autumn, the government says.

It should rise to 7.3% from the current 4.5% but will be amended to “align with the latest data on market interest rates” for loans.

University Minister Andrea Jenkyns said she wanted to “provide support” amid the rising cost of living.

But the Institute for Fiscal Studies said the change did “nothing at all to protect current students”.

Student loan rates will be reviewed again in December.

The interest rate on the loan for those currently studying at a university in England is calculated by adding 3% to the Retail Price Index (RPI) – a measure of inflation that indicates the rate at which prices are increasing.

The RPI number confirmed in April set the interest rate for the upcoming academic year. Meanwhile, the Institute for Fiscal Studies (IFS) forecast that the maximum student loan rate would rise from 4.5% to 12% from September this year.

Then, in June, the government said the rate would be capped at 7.3% to offer “peace of mind for graduates”.

Announcing the government’s latest move, which sets the cap at 6.3%, Ms Jenkyns said the further cut in interest rates was meant to calm anxious students.

“We understand that many people are concerned about the impact of rising prices and we want to reassure people that we are stepping up to provide support where we can,” she added.

The government’s announcement doesn’t change the amount borrowers pay back each month — it changes the total amount they owe.

Ben Waltmann, senior research economist at IFS, said most graduates’ repayments would not be affected by the recent adjustment.

“Only the minority of mostly high-earning graduates who want to pay off their loans in full will ever actually benefit,” he said, adding that it would reduce a typical student loan balance for young graduates by about £100 this autumn.

“Importantly, this does nothing at all to protect current students from the rising cost of living.”

The IFS analysis suggests that in the coming academic year, the real value of maximum living loans – for students from the poorest backgrounds – will fall to a seven-year low.

Commenting on the survey, Mr Waltmann said: “Unless the government changes course, students from the poorest families will have at least £100 out of their own pocket – a month.”

For students starting in 2023, the interest rate will be set at a lower level.