The student loan interest rate is expected to fluctuate significantly in the future, leading to uncertainty for graduates.
The Institute for Fiscal Studios (IFS) tweeted a briefing on the retail price index (RPI) inflation, suggesting that graduates are in for a rollercoaster of ride with their student loan interest rates.
It released information showing the RPI figures may be a cause for concern for anyone who took out a loan in 2012.
Because of the RPI inflation rate, the interest rate will rise from 4.5% to 12% for high earners and from 1.5% to 9% for low earners from September 2022.
This is the highest increase for university students in England since fees were raised to £9,000 in 2012.
IFS tweeted a diagram showing the inflation pattern over the next coming years.
NEW: Graduates are in for a rollercoaster ride on student loan interest rates in the coming years.
— Institute for Fiscal Studies (@TheIFS) April 13, 2022
The inflation rate is likely to rise 12% in August then fall to around 7% in March 2023 and then potentially fluctuate around 7-9% for a year and half.
It may fall in September 2024 before rising again to 5% in March 2025. These wild swings in inflation rate may cause issues for high-earning graduates.
Because of how the interest rates works it will affect all borrowers’ loan balances, but it only takes effect on the high earners who are able to pay back the loan.
Gyebi-Ababio, the NUS Vice-President for Higher Education Hillary said: “These figures are brutal.
“Increasing the maximum interest rate on student loans to 12% will deter thousands of students from going to university and will cause unparalleled uncertainty for the millions of graduates already repaying their loans with thousands of pounds added to their debt sheet.”
The issue with the interest rate
The main concern with the repayment CAP is the implications for people who want to take out a loan but do not understand the complex system. They could make decisions that may not help them in the future.
If current borrowers decide to pay back a substantial part of their loan early to avoid the high interest rate, they might not realise that the interest rate will be lower later.
Malik Alkhanshaly 24, who is an account and finance student at Liverpool John Moore University said: “I don’t think students are being treated fairly in this current inflation period.”
Malik went onto explain that he does not think the amount it has increased by is fair.
“It puts pressure on new graduates knowing they will have to pay back more and can even discourage up and coming students.”