Question to the Department for Education:

To ask the Secretary of State for Education, whether her Department has made an assessment of the impact on students of interest accruing on student loans during periods of deferral for medical reasons.

The system for setting interest rates on student loans is set out in The Education (Student Loans) (Repayment) Regulations 2009, as amended. Interest is charged from the first payment of the student loan is made until the loan has been repaid in full or cancelled, with interest added to the principal balance each month. Interest will continue to accrue even if a student suspends or withdraws from their course, including for students deferring due to medical reasons. Borrowers will be liable to repay after leaving study only when earning over the relevant repayment threshold.

Borrowers are protected. Repayments are calculated as a fixed percentage of earnings above the relevant repayment threshold. Repayments do not change as a result of the interest rate charged or the amount borrowed. If a borrower’s income drops, so does the amount they repay. Any outstanding debt, including interest accrued, is written off after the loan term ends, or in case of death or disability, at no detriment to the borrower.

To further protect borrowers, the government, by law, must cap maximum student loan rates to ensure the interest rate charged on the loan is in line with market rates for comparable unsecured personal loans. On 9 November 2022, the Student Loan Company (SLC) announced that the interest on Plan 2 and Plan 3 student loan repayments will be capped to 6.5 from 1 December 2022. Without this cap, student loan borrowers may have faced interest rates between 9 to 12%.

From the 2023/24 academic year, student loan borrowers starting new courses will benefit from interest rates of RPI only. This change ensures that, under the new ‘Plan 5’ loan terms, new borrowers will not repay more than they originally borrowed, when adjusted for inflation.