Students face sharp rise in interest on tuition loans

Interest rates on loans for fees and living costs are set to rise by about a third

Millions of students and former students in England and Wales will face a sharp increase in interest rates on tuition fees and maintenance loans.

The interest rates are linked to inflation - and are set to rise by about a third from 4.6% to up to 6.1%.

It will come in the autumn alongside an increase in tuition fees to £9,250 for universities in England.

The Department for Education is also trying to sell off more student loan debt to private investors.

An education department spokeswoman said that rates for the autumn are "not confirmed" until September.

Rising costs

But for those taking out loans since 2012, the rate is based on the RPI (retail prices index) measure of inflation in March, which was published on Tuesday.

This showed an increase to 3.1% compared with 1.6% last year and 0.9% the previous year.

Interest is charged while students are still at university at the level of RPI plus 3% - which would mean charges on tuition fees and maintenance loans of 6.1%.

The increase would mean a higher cost in interest charges before students had even graduated.

After students leave university, interest rates are linked to earnings, which will rise up to 6.1% for an income of £41,000 and over - based on RPI plus 3%.

For students who were at university before 2012, the loan rates will remain unchanged.

There has been increasing attention paid to the level of interest charged on student loans.

The Intergenerational Foundation think tank has highlighted that while the focus has been on the headline tuition fee, the amount that it actually costs students in repayments including interest charges will often be much higher.

Before the forthcoming interest rate increase, students earning £41,000 per year were forecast to make repayments of £54,000 on tuition fees.

This figure was without including the amount students also borrow for living costs such as accommodation - and without any amount outstanding when debts are written off after 30 years.

The foundation's report on tuition fee interest was called "The Packhorse Generation" to describe these increasing levels of debt.

The government is also in the process of trying to sell off the student loan book to the financial markets.

In February it announced that loans to students in England between 2002 and 2006 will be put up for sale, to be followed by other pre-2012 loans, with the aim of raising £12bn.

The scale of debt owed by students for loans for tuition and maintenance has continued to climb.

In England, the amount owed last year had reached £76bn, compared with about £34bn in 2011.

The National Union of Student president, Malia Bouattia, said the rising levels of debt would cast a long financial shadow over young people's lives.

"Graduates wanting to access the housing market, save and start pensions after university are already struggling to do so and this step will only disadvantage them further," she said.

A Department for Education spokeswoman said: "Our student funding system is sustainable and fair, with affordable loan rates based on income. This means no individual will see their repaymen‎ts rise as a result of interest rates increasing.

"Rates are set each year in September and are not confirmed before then."

This comes as New York's governor announced a deal to scrap tuition fees in public universities and colleges for families earning up to $125,000 (£100,000) per year, being phased in from the autumn.