Claire Reid
Graduates in England will face up to 12 percent interest on their loans from September this year, the Institute for Fiscal Studies has said.
This will then dip six months later, in March 2023, due to a new cap being brought in on interest rates.
However, between September 2022 and March 2023 the rate will rise from 1.5 percent to 9 percent for low earners and from 4.5 percent to 12 percent for those higher earners.
This means someone with a £50,000 debt could incur around £3,000 worth of interest in just six months.
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The IFS said the interest rate will most likely fall back to around 7 percent in March next year.
The higher interest won't affect students starting university next September as the cap will have been brought in by then.
The IFS said: "The maximum rate will reach an eye-watering level of 12 percent between September 2022 and February 2023 and a low of around zero between September 2024 and March 2025.
"There is no good economic reason for this. Interest rates on student loans should be low and stable, reflecting the government's own cost of borrowing."
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Interest rates for students in England are currently set by adding 3 percent onto the retail price index (RPI) measure of inflation.
Tom Allingham, Save the Student's Head of Editorial, said: “At a time when students and graduates alike are having to contend with huge increases in the cost of living, today's RPI announcement is yet another blow.
“If implemented, a maximum interest rate of 12 percent would massively exceed the previous Plan 2 high of 6.6 percent and represent an almost threefold increase on the current top rate. For lower earners whose loans accrue interest at the rate of RPI only, the use of March's figure would mean that, come September, their interest rate will be six times higher than it is now.
“It's worth noting that, as graduates only ever repay a percentage of their earnings over a threshold, any change to the interest rate won't affect the amount people repay each month. However, higher interest rates do mean larger overall debts, which in turn means the loan takes longer to repay for those who may otherwise have done so earlier.”