Student loan interest rate cap raised amid accusations graduates are being treated as ‘cash cows’

The student loan interest rate in Wales will rise from the current 4.5% to 7.3% this autumn amid accusations that students are being used as ‘cash cows’. Earlier this year the Institute for Fiscal Studies said the interest rate would rise to 12% – but the Welsh government will follow England and cap the rise at 7.3% for 12 months.

In a written statement, the Welsh Government said it “will continue to protect students from high interest rates on their loans which result from high levels of inflation”.

NUS UK chair Larissa Kennedy said interest rate figures, although slashed, were still “crushingly high”. Students have been impacted by the cost of living and “are not cash cows”, she added.

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The rate of inflation determines the interest charged on some student loans. The Welsh government has said it must ensure rates do not rise above the prevailing market rate and has taken action on three occasions in the past 10 months to cap the rate on loans.

“In order to prevent rates from reaching 12%, an interest rate cap will be applied from September 2022. The cap will be set at the forecast market interest rate for the academic year 2022/23, which is 7.3%.

“The rate for loans taken out by undergraduate students since 2012, and by postgraduate students, will be capped at 7.3% between September 1, 2022 and August 31, 2023. Other rate caps may apply if the prevailing market rate continues to be lower than the student loan interest rate.”

Interest rate changes do not affect monthly student loan repayments, which are charged as a fixed proportion of income. Loan repayments depend on income. Students only repay their loan if they earn above a certain threshold, and remaining debts are forgiven after 30 years.

“The cost of living should never be a barrier to studying at university, which is why the Welsh government offers the most generous scholarships in the UK. Welsh students have less to repay on average than their English peers The Welsh Government is also providing debt write-off of up to £1,500 for each borrower entering repayment, a scheme unique in the UK,” the written statement added.

The change is calculated to mean that the accrued interest of a borrower in Wales and England with a student loan balance of £45,000 would fall by around £180 per month compared to interest rates of 12 %.

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