The interest rate on student loans in Wales has been capped at 6.3% in the face of soaring inflation. It was due to rise from the current 4.5% to 7.3%, but is being lowered furrther “to protect students”, said education Minister Jeremy Miles.
The 6.3% rate kicks in from September 1 and will be reviewed again in December. The move will not alter the amount loans are paid off each month, but will change the amount owed overall.
Announcing that Wales would lower student loan interest rates to 6.3% in line with an announcement made in England Mr Miles said in a written statement: “The Welsh Government will continue to protect students from high interest rates on their loans, rates which are a result of high levels of inflation.”
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The RPI rate of inflation which determines the interest charged on certain loans reached 9% in the year to March 2022. Interest rates for student loans would have risen to up to 12% from this month under this measure.
Mr Miles said The Welsh Government “must ensure that rates do not exceed the prevailing market rate” and has taken action three times in the last year to cap the rate on loans to “protect students”.
“The rate on loans taken out by undergraduate students since 2012, and by postgraduate students, will be capped at 6.3% between 1 September 2022 and 30 November 2022. Further rate caps may be applied if the prevailing market rate continues to be below student loan interest rates after that date.”
Changes to interest rates do not change monthly student loan repayments, which are charged as a fixed proportion of income. Loan repayments depend on income. Students repay their loan only if they earn above a threshold, and remaining debts are written off after 30 years.
The Welsh Government also provides a debt write-off of up to £1,500 for each borrower entering repayment, a scheme unique in the UK.
The interest rate on the loan for students currently at university in England and Wales is calculated by adding 3% to the retail price index (RPI) - a measure which indicates the rate at which prices are rising.
The RPI figure confirmed in April set the interest rate for the forthcoming academic year, which would have led to a predicted leap to 12%. In June the Welsh government said the rate would be capped at 7.3% but has now lowered that to 6.3%.
Once earning people with student loans pay them back depending on earnings. In England and Wales the threshold is £27,295, but will drop to £25,000 from September 2023. Those earning less than the threshold don't repay anything back.
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