Thank you for contacting me about the interest on student loans.
Anyone with the ability to benefit from higher education should have the opportunity to do so, irrespective of their background. That is why all eligible students can apply for an upfront tuition fee loan to meet the full costs of their tuition fees, as well as loans for living costs.
Student loans are not like commercial loans. Borrowers only have to repay when they are earning over £21,000 a year, and anyone earning below £21,000 will not have to make repayments. Deductions are taken at 9 per cent of any income over that threshold and any outstanding balance will be written off after 30 years. This protects borrowers on lower incomes, and all borrowers will pay less per month under the system introduced in 2012 than under the previous system.
For those who first received their student loans in 2012 or later ("Plan 2" loans), interest is set at the Retail Price Index (RPI) + 3 per cent while the student is studying. Once a student finishes their course, interest will be set at RPI for those earning up to £21,000, and it will gradually increase to a rate of RPI + 3 per cent for those earning £41,000 or more. These terms are set out in the loan agreements which all borrowers must sign before they can access student finance.
I'm pleased that the commitment to abolish the cap on student numbers has been delivered, giving more people the opportunity to secure a university place. Applications among students from disadvantaged backgrounds are also at record rates.
To ensure that the costs of the student loan book remain affordable in the long term, a decision has been made to freeze the repayment threshold at £21,000 for five years for loans issued to entrants after September 2012. However, contrary to recent reports, there has been no change in policy relating to interest rates. The rate of interest charged on student loans changes annually every September, based on the previous March's RPI figure. This has been the case ever since income-contingent student loans were introduced in 1998.
I understand that prospective students, those already studying and those who have left university will want clear information about the student finance available. Further information is available on Gov.uk at https://www.gov.uk/student-finance and on the SLC website at www.studentloanrepayment.co.uk.
Thank you again for taking the time to contact me.