Student loans interest rates cuts: Who does it affect and when do the changes happen?

·2-min read
University students and graduates aged 40 and under have nearly double the amount of non-student loan debt compared with those who did not attend university, according to Equifax (Chris Radburn/PA) (PA Archive)
University students and graduates aged 40 and under have nearly double the amount of non-student loan debt compared with those who did not attend university, according to Equifax (Chris Radburn/PA) (PA Archive)

Student loan interest rates will be slashed for the second time this summer as the Government has intervened to protect borrowers from rising inflation rates and cost of living.

The Department for Education (DfE) announced the cut of 6.3 per cent for the coming academic year.

Monthly student loan repayments, which are calculated by income and not interest rates or amount borrowed, take around nine per cent of graduate incomes over the £27,295 threshold.

Minister for Skills, Further and Higher Andrea Jenkyns said: “We understand that many people are worried about the impact of rising prices and we want to reassure people that we are stepping up to provide support where we can.”

Here’s what you should know about the cut to monthly payments:

How much were the studen loan rates cut by?

In June, ministers announced that the student loan interest rates would be reduced from 12 per cent to 7.3 per cent.

This has now been further lowered by one percentage point to a limit of 6.3 per cent.

Who does it affect?

This decision applies to graduates who borrowed under Plan 2 undergraduate and postgraduate loans.

As a result, borrowers with an owed balance of around £45,000 would pay £210 less per month at the new interest rate of 6.3 per cent.

This reduction, however, would have less impact on lower-earning graduates.

A spokesperson for the Student Loans Company said: “The change in interest rates is automatically applied so customers don’t need to take any action.

“We encourage customers to use SLC’s online repayment service to regularly check their loan balance and repayment information, as well as ensure their contact information is up-to-date.”

The changes apply to borrowers in England and Wales.

When does the student loan interest rates change come in to force?

In the cost of living crisis, changes have been made twice this summer.

The change is due to come in to force this September 2022, at the start of the new academic year.

Student loan interest rates will face another review in December.