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Students hit by increased interest

Rapidly rising inflation has pushed interest rates on many student loans above 6%, meaning that most new students will incur more than £5,000 of interest payments before they even leave university.

Student loans used to have relatively cheap interest rates, pegged either to retail price inflation (RPI) or the Bank of England base rate, plus 1%. Since 2012 interest has been charged at 3% plus RPI. That means that student interest rates, which from today (1st September 17) are being tied to March's 3.1% inflation figure, are hitting students hard.

Coupled with the fact that the cap on tuition fees was raised from £3,225 to £9,000 in 2012, it means students are facing higher fees than ever before. This means the combination of a higher interest rates and bigger fees has lead to student debt rising above £100 billion for the first time.

The Institute for Fiscal Studies (IFS) estimates students enrolling this year could run up to £5,800 of interest charges in a three-year degree, assuming they take out the maximum tuition fee loan and the maximum non-means tested maintenance grant. Average debt on graduation in 2017 was £50,800, according to IFS figures, compared to £44,000 in 2016, driven by interest rate hikes.

When in work after graduation, students will pay 9% of everything they earn above £21,000, until they reach their early fifties, at which point the debt will be erased.In many cases, graduates will hardly make a dent in their debt levels before they reach that stage: The IFS estimates 70% of students will never repay their loans.