Student loan interest rates 2022: what is the new rate?

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Those who received tuition fees in England and Wales will receive living expenses support, the government has announced

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So how high is the new Bafög interest rate – and why was it changed again?

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UK student loan rates to be cut by government (Image: Getty Images)

What is a student loan?

Student loans – also known as tuition fees – are loans given to English and Welsh students during their studies.

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In 2012, these loans became the main funding method for universities since the government decided to abolish the teaching grant system

As a result, student loans increased from a maximum of £3,000 a year to a new cap of £9,000 a year.

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Essentially, this new system took the burden off the taxpayer and placed it on the individual student.

Tuition fees have not been popular with students since they were introduced in 2012 (Image: Getty Images)

This means that those who studied from the 2012/13 academic year will have to repay loans at an additional interest rate – ie additional costs designed to preserve the value of the loan.

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This interest rate is added to the amount you borrow and does not affect how much you pay each month.

It is set in August each year before taking effect in September.

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During your studies, the interest rate is a flat rate of 4.1%.

After you graduate, the interest rate is indexed to inflation as measured by the Retail Price Index (RPI) — a measure calculated by the Office for National Statistics — and varies based on how much income students make after they leave university.

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High-earning graduates pay off more student loans than lower-earning earners (Image: AFP/Getty Images)

Those who earn more have to add more interest to their loans, while those with lower salaries have less to pay back.

The current maximum interest rate is 4.5%.

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This number consists of the RPI in March 2021 – 1.5% – and the interest for someone earning more than £49,130 ​​a year.

Here’s how much interest will be added to your loan based on how much you earn:

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  • £27,295 or less (flat RPI rate – 1.5%)
  • £27,296 to £49,130 ​​(RPI rate plus up to 3%)
  • Over £49,130 ​​(RPI rate plus 3%)

You don’t pay anything back unless you’re currently earning above the £27,295 threshold, but that will be reduced to £25,000 from 2023.

Student loan interest does not directly affect monthly repayments (Image: Getty Images)

How are student loan rates changing?

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Students faced a rate hike of up to 12% in September 2022 as inflation spiked to 9% of the RPI in March 2022.

That increase would have meant graduates were paying much more than average mortgage and unsecured loan rates.

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High-earning graduates with a typical loan balance of £50,000 would have seen a further £3,000 in interest on their debt in just six months before an emergency mechanism stepped in and cut the interest rate.

But in June, the Department of Education (DfE) introduced a 7.3% cap to “provide graduates with more clarity and certainty at this point.”

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On Wednesday (10 August), the DfE intervened for a second time to cut interest rates to 6.3% by September – almost half of what they could have been.

Graduates could expect interest rates of 12% for six months from September (Image: Getty Images)

“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,” Ms Jenkyns said.

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This means that a graduate with a £45,000 student loan balance would see their accumulated interest fall by around £210 a month compared to what they would have accumulated if the interest rate had gone up by 12%, according to figures from the DfE.

The changes affect those with undergraduate (Plan 2) and postgraduate (Plan 3) loans.

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The government also said the move should reassure students considering starting university in September 2023.

Government has been urged to provide more living expenses to students (Image: AFP/Getty Images)

Despite saying the move would give students and recent graduates a psychological boost, Save the Student — an advocacy group for current and young students — told Mazic News the change would primarily benefit higher-earning graduates.

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“It’s still the case that middle-to-low-income graduates aren’t going to pay off their debt until after the 30-year limit,” said Jake Butler, spokesman for Save the Student.

“The rate could be 5000% and it still wouldn’t make a difference to them, so the drop to 6.3% is a purely political move.”

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Butler added: “The government is still ignoring the main problem here, which is the lack of adequate funding through the maintenance loan to cover living expenses.

“At the current rate of inflation, that should be the main focus.”

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How can I check my student loan balance?

The public lender’s online repayment service shows you what you owe and what your monthly repayments are.

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The government has also asked students and graduates to check that their contact details are up to date on the website.

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