(Chris Radburn/PA)
(Picture: PA Archive)Senior Conservative MPs have warned “outrageous” interest rate rises on student loans could put young people off from going to university.
Two former Tory ministers called for the government to take immediate action in a bid to curb rises amid fears some graduates could be hit with rates of up to 12 per cent.
Former business secretary Greg Clark told the Observer: “A 12 per cent interest rate on student loans is an outrageous charge that the government must prevent from happening.
“It is a breach of what students expected – that interest on loans would be no higher than market rates.
“And it risks frightening off new students from entering higher education, even in courses like science and engineering, at a time when the economy desperately needs these skills.
“When conditions are turbulent the government needs to be agile in taking quick action to head off unintended consequences.”
Chris Skidmore, a former universities minister under Boris Johnson, warned that the rises could put “young people off even thinking about university”.
“We can’t, as a country, afford for people from disadvantaged backgrounds not to fulfil their potential because of the looming shadow of debt and interest rates,” he said.
In April the Institute for Fiscal Studies (IFS) has calculated that because of current RPI inflation rates, the maximum interest rate on loans – paid by those earning £49,130 or more – will rise from current rates of 4.5% to an “eye-watering” 12% for half a year.
Interest rates for low earners are set to rise from 1.5% to 9%, the IFS said.
They added that this means that a high-earning recent graduate with a typical loan balance of £50,000 would incur £3,000 in interest over six months, a higher amount than a graduate earning three times the median salary for recent graduates would usually pay.
The IFS said that the maximum student loan rate was then set to fall to around 7% in March 2023, fluctuating between 7% and 9% for a year and a half.
