Student mortgage curiosity to be capped amid fury at price of debt – however solely at TWICE the present UK fee of inflation
Student loan interest will be capped from September, but only at double the current rate of inflation, ministers have announced amid a major row over the costs facing graduates.
The interest rate on Plan 2 and Plan 3 student loans will be restricted to 6 per cent or less, the Department for Education announced this morning.
Currently the way that the rate is linked to retail price index (RPI) inflation means that it varies and has hit 9 per cent, fuelling demands for it to be reduced, capped or scrapped altogether.
While the new rate is lower than before it is still twice the current rate of consumer price index (CPI) inflation, which is at 3 per cent and is seen as a better measure of consumer pressure.
With the prospect of the Iran war pushing up inflation further, skills minister Jacqui Smith said: ‘We know that the conflict in the Middle East is causing anxiety at home, and while the risk of global shocks is beyond our control, protecting people here is not.
‘Capping the maximum interest rate on Plan 2 and Plan 3 student loans will provide immediate protection for borrowers, supporting those who are most exposed within this already unfair system.
‘We’re acting now to defend against the consequences of far-away conflicts in an uncertain world.’
But shadow education secretary Laura Trott said: ‘Labour are tinkering around the edges, while graduates will still be paying interest above inflation.
The interest rate on Plan 2 and Plan 3 student loans will be capped at 6 per cent the Department for Education has announced
Currently the way that it is lined to retail price index (RPI) inflation means that it varies and has hit 9 per cent, fuelling demands for it to be reduced, capped or scrapped altogether
These proposals do not go far enough and they confirm Labour have no serious plan to stop graduates being ripped off.’
Graduates with Plan 2 loans currently pay interest rates based on the retail price index (RPI) measure of inflation plus up to 3 per cent based on their earnings.
Current students on Plan 2 and Plan 3 loans attract an interest rate of RPI +3 per cent while they are studying.
Plan 2 student loans cover those taken out for undergraduate courses and Postgraduate Certificates of Education (PGCE) since September 1 2012 in Wales and between September 1 2012 and July 31 2023 in England.
Plan 3 student loans cover postgraduate master’s or doctoral courses for borrowers in England and Wales.
Chancellor Rachel Reeves has faced growing calls to reform plan 2 loans in particular after her budget last year, in which she announced the salary threshold would be frozen at £29,385 for three years starting from April.
She initially defended the student loans system as ‘fair’ but last month said it was ‘broken’, while indicating any changes were not an immediate priority.
In February Tory leader Kemi Badenoch said the Tories would limit interest to RPI inflation, which is usually higher than CPI.
Green leader Zack Polanski went further and suggested student loans worth billions be written off by the taxpayer.
