England student loan interest rate capped at 7.3%

The interest rate on student loans in England is to rise by less than originally predicted this autumn.

The rate on repayments had been predicted to rise from the current 4.5% to 12% by the Institute for Fiscal Studies, but the government says it will now be capped at 7.3%.

Higher Education Minister Michelle Donelan said the level of the cap would provide "peace of mind for graduates".

But the National Union of Students said the cap was "still cruelly high".

The IFS welcomed the announcement but said it would "have little or no effect" on most graduates' repayments.

The interest rate on the loan for those currently at university in England is calculated by adding 3% to the retail price index (RPI) measure of inflation.

The RPI figure confirmed in April set the interest rate for the coming academic year - and the IFS said the maximum rate on student loans would jump from 4.5% this year to 12% from September 2022.

• Student loan interest rate to hit 12% in England

• Students to pay off loans into their 60s, plans say

Confirmation of student interest rates is usually made in August, but Ms Donelan said the government had "brought forward this announcement to provide greater clarity and peace of mind for graduates at this time".

"The government has always been clear that where it can help with rising prices we will, and I will always strive for a fair deal for students," she added.

However, Larissa Kennedy, NUS president in the UK, said: "These interest rate figures are still cruelly high.

"While some graduates might breathe a sigh of relief that the interest rate is no longer in double figures, ministers should be prioritising providing urgent cost-of-living support here and now," she said.

She added that the government "should introduce rent protections, offer basic levels of maintenance support and announce a cost-of-living payment for all students".

• Warning UK to see slowest growth of developed nations

• Why are prices rising so quickly?

The announcement from the government does not change the amount that borrowers repay each month.

For students starting degree courses from 2023, the interest rate will be fixed at a lower level.

Ben Waltmann, senior research economist at the IFS, said it was "great" that the government has decided to take action - but "for most graduates this announcement will have little or no effect on their repayments".

That is because most people with undergraduate loans will "likely never pay off their loans in full, so the interest rate never affects their repayments", he said.

"Even for the typically high-earning graduates who do pay off their loans, very high interest rates from September to February would have been counterbalanced by very low interest rates further down the line, which now won't come to pass either," he added.

Correction 27th June: This article was amended on the 11th of June to make clear that the Government was announcing a cap on the student loan interest rate - so the top rate from September 2022 will be lower than the IFS originally predicted - and that it was not announcing a reduction from the current top rate.

• BREAKING UP WITH MY PHONE: How to build a healthy relationship with your device

• 'A FINISHING SCHOOL FOR INFLUENCERS': Love Island, fast fashion and the strange world of reality TV