Graduates are likely to see a fall in the amount of interest they pay on their student loans from September.

March's Retail Prices Index (RPI) rate of inflation is what's currently used to work out how much interest former students pay on their loans.

As we now know this rate of inflation was 2.5%, it means we can calulate what students are likely to repay for the academic year beginning in September – although the Government says it won't confirm what rate of interest students will repay until July or August.

MoneySavingExpert.com creator Martin Lewis says: "It’s almost certain that we now know what you will pay on your student loan.

"For pre-1998 students, it's likely to be 2.5%, down from 3.3%. For 1998-2011 starters it’s 1.5% unless interest rates rise.

"And it's 5.5%, down from 6.3%, for post-2012 students.

"It's never officially confirmed by the Department for Business, Innovation and Skills, but every year the amount students pay is based on March's RPI, so this is a pretty good bet that that’s what's going to happen this September."

Here's how the system works:

  • Pre-1998: Students who started higher education between 1990 and 1997 are on old "mortgage-style" loans. The current interest rate is set at 3.3%, but this will likely drop to 2.5% in August when the Government confirms the interest rate. With these loans, you must make repayments if you earn over £28,775 per year, though you can pay before that, if you want to.
  • 1998-2011: Students who started higher education between 1998 and 2011 are on "income-contingent" loans. The current interest rate is 1.5%, set at either the Bank of England base rate plus 1%, or the rate of inflation, whichever is lower. With these loans, you repay 9% of everything earned above £16,910 a year.
  • Post-2012: Students who started in 2012 or later haven't started repaying their income-contingent loans. The current interest rate is set at 6.3% (March 2013's RPI + 3%), but this will likely drop to 5.5% in August when the Government confirms the interest rate. With these loans you'll have to repay 9% of everything earned above £21,000 a year.

See the Should I Repay My Student Loan?, Student Checklist and Student Loans Mythbusting guides for more help.

Additional reporting by Amy Ellis.

Martin Lewis
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