The Labour government has confirmed that student loan interest rates will rise from September, increasing to 4.1% from the current 3.2%. This change applies to graduates on Plan 1, Plan 4, and Plan 5 student loans.
Interest Rate Changes by Loan Plan
For those on Plan 2 or Plan 3 loans, a temporary 6% cap will be in place from September. Graduates begin repaying Plan 2 loans when they earn over £29,385 per year, with the loan written off after a set period. Plan 1 loans have a repayment threshold of £26,900 per year, while Plan 4 loans for Scottish borrowers have a threshold of £33,795 per year. Plan 5 loans have a threshold of £25,000 per year. For Plan 3 postgraduate loans, the repayment threshold is £21,000 per year.
Expert Analysis
Tom Allingham, Student Loans expert at Save the Student, commented: “While we welcomed the certainty given by the 6% interest cap on some Student Loans, it was always clear that it would have a limited impact – and today's announcement underlines that. Any Plan 2 graduate earning less than £51,300 per year will still see their interest rate rise in September, and only those earning more than about £44,300 will actually benefit from the 6% cap. Meanwhile, anyone with a Plan 1, 4 or 5 loan will see their interest rate increase by 0.9 percentage points, as no cap has been introduced for them.”
Allingham added: “It should be noted that the interest rate on Student Loans has no impact on the size of monthly repayments: these are only determined by a borrower's salary, usually amounting to 9% of earnings above a threshold. The interest simply affects the overall level of debt and how long it takes to repay in full.”
