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The student loan calculator shows you exactly how much interest you will be paying from September

Rising inflation means student and graduate debt could be rising fast this year – use our calculator below to find out how much you might be looking to pay back

That means student loan rates will rise from September from 4.5% to 12% for high earners and from 1.5% to 9% for low earners. Current students are also charged 12% on their loans during their studies.
That means student loan rates will rise from September from 4.5% to 12% for high earners and from 1.5% to 9% for low earners. Current students are also charged 12% on their loans during their studies

English and Welsh graduates who have taken out student loans since 2012 can expect a ‘roller coaster ride’ when it comes to interest rates, a new analysis shows.

This means students pay higher interest rates on their loans than homeowners paying off mortgages.

The Institute for Fiscal Studies (IFS) has calculated that current RPI inflation rates mean the maximum interest rate on loans – paid by people earning £49,130 ​​or more – will rise to a “staggering” 12 from the current 4.5% % for half a year.

Interest rates for low earners are set to rise from 1.5% to 9%, according to the IFS.

They added that this means a high-earning graduate with a typical loan balance of £50,000 would pay £3,000 in interest over six months, a higher amount than a graduate earning three times the average graduate salary would normally pay.

The IFS said the maximum interest rate on student loans should then drop to around 7% in March 2023 and fluctuate between 7% and 9% for a year and a half.

“It is then expected to fall to around 0% in September 2024 before rising again to around 5% in March 2025,” according to the IFS.

“These wild swings in interest rates are caused by the combination of high inflation and an interest rate cap that is taking half a year to come into effect,” they added.

They said that without the rate cap, the maximum rates would be 12% in the 2022-23 academic year, rising to around 13% in 2023-24.

The “interest roller coaster ride” would cause problems, since the interest rate cap would disadvantage students with falling debt levels.

It could also discourage students from going to university or urge graduates to pay off loans when there would be no financial benefit to them.

The “obvious” increases are related to the retail price index and an increase in the cost of living.

For borrowers who are freshers in 2012 or later, student loan interest rates are typically indexed to the Retail Price Index (RPI).

Student loan interest rates are typically calculated between the RPI inflation rate and the RPI inflation rate plus 3%.

Is 12% interest on student loans fair? Tell us what you think below

But there is a lag between the RPI inflation rate and student loan rates, which the IFS calculates means the current high inflation rates will mean high student loan rates for 2022/23.

“This high figure implies a staggering rise in student loan interest rates to between 9% and 12%,” the IFS said.

“Not only is that far higher than average mortgage rates, but also far higher than many types of unsecured loans. Student loan borrowers might legitimately ask why the government is charging them higher rates than private lenders are offering,” they added.

Student loan interest rates are not expected to rise above market interest rates, but lags between when the market interest rate is measured and when the DfE intervenes means students will have to pay uncapped interest between September 2022 and February 2023.

The situation is likely to disadvantage higher-earning graduates. Borrowers whose debt decreases over time are burdened more heavily than those whose debt increases.

The IFS said this would result in an “unfortunate reallocation” between graduates.

Ben Waltmann, senior research economist at the IFS, said: “If the government doesn’t change interest rates on student loans, there will be large fluctuations in the interest rate over the next three years.”

“The peak rate will reach a staggering 12% between September 2022 and February 2023, and a trough of around zero between September 2024 and March 2025.

“There is no good economic reason for this. Student loan interest rates should be low and stable, reflecting the government’s own borrowing costs.

“The government urgently needs to adjust how the interest rate cap works to avoid a significant hike in September.”

University and College Union general secretary Jo Grady said: “It just can’t be right to saddle students with tens of thousands of pounds worth of debt and then expose them to the vagaries of volatile markets and skyrocketing interest rates.”

“Today’s news will have those already paying off their student loans to prepare for increased debt payments during a cost-of-living crisis and compel others to consider whether a college education is even worth the cost. At every level, this is a political catastrophe. “

A spokesman for the Department of Education said: “Unlike commercial loans, student loans are protected in a number of ways.

“Monthly student loan repayments are linked to income rather than interest rates or amounts borrowed, and borrowers earning below the relevant repayment threshold make no repayments at all.”

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https://www.mirror.co.uk/money/student-loan-calculator-shows-you-26722255 The student loan calculator shows you exactly how much interest you will be paying from September

Fry Electronics Team

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