Student Loan Interest rates to rise this autumn

The interest rate on student loans is to be capped at 6.3%, 1% less than the planned 7.3% but has been altered down to align with current market rates. The current rate is 4.5%.

Student loan rates will be reviewed again in December. Typically the rate is calculated by adding 3% to the retail price index, an inflation measurement which indicates how quickly prices are rising.

The institute for Fiscal Studies has previously predicted the maximum rate on student loans would jump from 4.5% to 12% in September. As a result, the government capped the rate at 7.3% to provide "peace of mind for graduates". The Welsh government has announced it would follow suit.

Universities minister, Andrea Jenkyns, said the further reduction in interest rates was intended to offer reassurance to anxious students:

"We understand that many people are worried about the impact of rising prices and we want to reassure people that we are we are stepping up to provide support where we can,"

IFS analysis however suggests this change will not be noticed much by most graduates, with only the high-earning graduates set to pay off their loans in full to benefit. More importantly, they estimate that the real-terms of maximum maintenance loans for students from the poorest backgrounds will fall to its lowest level in seven years.

Commenting on the research, Mr Waltmann, senior research economist at the IFS said: "Unless the government changes course, students from the poorest families will be at least £100 out of pocket - per month."