Millions of students and graduates will be charged more interest on their student loans from September, because the inflation measure these rates are linked to has increased sharply.

However there's still good news for some, as the threshold at which people with a pre-1998 loan can defer payments has also gone up. This means those earning slightly more than previously can put off repaying their loan for a year.

The Government has today confirmed that March's Retail Prices Index (RPI) rate of inflation at 1.6% will be used to decide how much interest graduates pay on their student loans – a much higher figure than the 0.9% RPI figure from March 2015 used to calculate last year's rates.

The new earnings thresholds at which graduates begin to repay their loans have also been confirmed – though controversially, the threshold for repaying post-2012 loans isn't going up until at least 2021, a decision MoneySavingExpert.com has campaigned against.

Martin Lewis
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How are interest rates changing?

Here's a summary of what you'll be charged from 1 September:

  • Pre-1998 'mortgage-style loans': The current interest rate is 0.9%, but this will rise to 1.6% from 1 September – it's always the previous March's RPI. With these loans you currently make repayments if you earn over £28,828/year, but this will rise to £29,126/year from 1 September.

  • 1998-2011 'income contingent loans': The current interest rate is 0.9%. But rather than the March RPI rate of 1.6%, which it would normally mirror, it will change to 1.25% from 1 September. This is because the historically low Bank of England base rate announced earlier this month (0.25%) has activated an 'interest cap'.

    When the base rate +1% is lower than the March RPI, the lower figure is used, therefore acting as a cap in times of low interest rates.

    With these loans you currently pay 9% of everything earned above £17,495/year. This will rise to £17,775/year from April 2017.

  • Post-2012 'new-style income contingent loans': If you graduated earlier this summer, you'll be charged 4.6% ( March RPI + 3%) from September until next April – the same rate those still studying will be charged from September until next August. Currently you're charged 3.9%, so this is an increase.

    If you graduated last summer, then since April this year you'll have been charged 0.9% interest if you earn £21,000/year, rising gradually to the maximum of 'inflation plus 3%' – so 3.9% – if you earn £41,000/year or above. From September, these interest rates will change – you'll be charged 1.6% if you earn £21,000/year rising gradually to 4.6% at £41,000/year and above.

    Everyone with a post-2012 loan will repay 9% of everything earned above £21,000/year. This £21,000 threshold was initially scheduled to rise with UK average earnings from 2017. However, the Government has now frozen it until at least April 2021, meaning many graduates will pay back more than they first expected to.

    MoneySavingExpert founder Martin Lewis has fiercely campaigned against this retrospective hike in payments.

See MoneySavingExpert's Should I Repay My Student Loan?, Student Checklist and Student Loans Mythbusting guides for more help on everything student loan-related.

Graduate with a student loan? You'll be charged more interest from September
Students and graduates will be charged more interest on their student loans from September

What about the deferment rate for pre-1998 loans?

The Government's today confirmed that the threshold at which pre-1998 students can defer their loans – meaning they can put off repaying it for a year – is increasing from £28,828 currently to £29,126 from 1 September. So if you earn this figure or less annually, you'll be able to defer.

This doesn't affect anyone's current deferral period – this will continue as normal until the agreed end date.

Deferment application forms are processed annually with renewal forms sent out eight weeks before the renewal date.

If you're not currently eligible for deferment but will be from 1 September and you want to put off repayments, contact whichever company administers your loan: Erudio, Honours or Thesis Servicing.

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