Inflation Reduces Interest Rates in 2022

With an inflation spike, many students face the prospect of their loan interest rates trebling by the autumn. However, ministers have intervened to reduce this sharp increase, capping the maximum speed at 7.3%.

 

This move will relieve graduates struggling with repayments, as the lower interest rate will make it easier to manage their debts. However, with high inflation, students need to be mindful of their finances and budget accordingly. The Department of Education suggests that graduates consider making overpayments on their loans where possible to reduce the overall amount owed.

 

With rates on student loans increasing, inflation still climbing, and the cost of living rising, graduates need to be mindful of their finances and budget accordingly. The Department for Education (DfE) recommends that students make overpayments on their loans where possible to reduce the overall amount owed. For more tips on managing your money as a student or graduate, visit the Money Advice Service website.

 

Inflation hits 12% as interest rates on student loans are due to treble – leaving many facing hikes of up to £5,000

 

The inflation rate jumped to 12% in September – meaning the average graduate who started university in 2012 will see their debt increase by £5,168 if they do not make any overpayments.

 

This is because, under the current system, graduates have to pay back 9% of their income above the repayment threshold of £25,725, linked to the Retail Prices Index (RPI) measure of inflation.

 

With inflation now at 12%, this means that for every extra £100 a graduate earns above the repayment threshold, they will have to repay any additional £9 in student loan repayments.

 

So, for example, a graduate earning £30,000 a year will now have to repay £450 a year – an increase of £180 from the previous year.

interest rate

The news comes as a blow to many graduates who are already struggling to repay their student loans. The average graduate is now saddled with over £50,000, and the rising interest rates will only add to this burden.

 

In addition, the DfE has also announced that the interest rate on student loans will increase in line with inflation in the autumn. This means that the average graduate who started university in 2012 will see their debt increase by £5,168 if they do not make any overpayments.

 

With inflation still high, students must be mindful of their finances and budget accordingly. The Department of Education suggests that graduates consider making overpayments on their loans where possible to reduce the overall amount owed.

 

The University’s minister for England, Michelle Donelan, said: “I want to provide reassurance that this does not change the monthly repayment amount for borrowers, and we have brought forward this announcement to provide greater clarity and peace of mind for graduates.”

 

Monthly student loan repayments are calculated by income rather than interest rates or the amount borrowed. Graduates pay 9% of their income above a repayment threshold of £27,295 a year.

 

The DfE has said that it is looking into ways to help graduates struggling with repayment, but in the meantime, students are advised to make overpayments on their loans where possible. For more information on managing your money as a student or graduate, visit the Money Advice Service website.

In response, the University of Derby is maintaining their tuition fees plus applicants are given the opportunity to apply for scholarships, click here for more information.