Question to the Department for Education:

To ask the Secretary of State for Education, what estimate he has made of the additional cost to students in loan fees following the increase in March of the retail prices index.

The mechanism for setting student loan interest rates is set out in legislation. Interest rates are set annually. They apply from 1 September and are based on the retail prices index (RPI) figure from the previous March. The RPI for March 2018 was 3.3%, compared to 3.1% in March 2017.

The interest rate on post-2012 student loans is set at RPI+3% during study and then varies with earnings. The government increased the repayment and interest thresholds for student loans to £25,000 in April 2018, saving graduates up to £360 per year in repayments and reducing the interest charged for many borrowers. Borrowers with earnings of up to £25,000 are charged an interest rate of RPI, which increases to RPI+3% for borrowers earning above £45,000.

It is not possible to provide a meaningful estimate of the additional amount that a student will need to repay in future as a result of the change in interest rates, as this will depend on the borrower’s loan balance and future earnings. The increase in student loan interest rates from 1 September 2018 will affect only high-earning borrowers who will pay back all, or very nearly all, their student loans. The government expects that around 30% to 35% of post-2012 borrowers with higher education loans and 40% to 45% of borrowers with advanced learner loans will repay their student loans in full.