Students and graduates can expect to pay more interest on their student loans from September compared with the previous year, as inflation increases.
Figures today from the Office for National Statistics show the Retail Prices Index (RPI) rate of inflation has crept up to 1.6% in the year to March, from 0.9% in the 12 months to March 2015.
The 1.6% rate of inflation also represents a slight rise on the 2016 year to February figure of 1.3%.
The reason why the March statistic is significant is because it is used as a barometer for the interest charged on student loans from the coming September. However, the actual rate is usually only confirmed by the Government in August.
The interest rate charged depends on when you first took your loan out, but as we know the rate of inflation is 1.6%, we can calculate what graduates are likely to repay from September.
It's worth pointing out that the actual amount you pay will not change from September, as repayment rates are set seperately, but the total amount you owe is likely to increase.
How much interest will I pay from September?
There are three types of student loan and different calculations are used for each of them. In summary this is what you can expect to pay:
- Pre-1998 'mortgage-style' loans: For students who started higher education between 1990 and 1997 the current interest rate paid is 0.9%.
As the interest rate is set at the previous March's RPI rate of inflation, this will likely increase to 1.6% from September based on today's figures. With these loans you must currently make repayments if you earn over £28,828 per year.
- 1998-2011 'income-contingent style' loans: If you started higher education between 1998 and 2011, the interest rate you pay is likely to rise to 1.5% from September.
It's currently 0.9%, based on March 2015's RPI rate.
The interest rate students pay for these loans is set at whichever is lower: the 0.5% Bank of England base rate plus 1%, or the rate of inflation.
If you're a graduate in this date bracket you start repaying your loan when you earn over £17,495.
- 2012+ starters: The interest rate for students who began their studies in 2012 or later varies. Those currently studying are racking up interest as they do so.
For 2012+ starters, from the start of their studies until the April following graduation, they pay that year's RPI, plus 3%. So the current interest rate is 3.9%, but this will likely increase to 4.6% from September based on today's figures.
Then, from the April after these students graduate, the rate charged is that year's RPI rate if they earn under £21,000, rising to the maximum 'inflation plus 3%' if they earn £41,000 or above.