Plan 2 Student Loans To Incur Interest Rate Hike

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June 25th 2022
Tax Week 12
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Plan 2 Student Loans To Incur Interest Rate Hike

Post-2012 student loans will see interest rate rise by 7.5 percent this September.

Graduates in England and Wales are set to be hit with a double whammy of bad news this year when it comes to their student loan repayments.

Following on from this April's new tax year, where the repayment threshold for Plan 2 (post-2012) student loans has not increased and is fixed at the same £27,295 as last year - grads will now be charged 9 percent interest on their outstanding balances.

The interest rate for the loans is based on RPI (Retail Price Index) - which due to massive inflation over the last year is set to add 7.5 percent to the current 1.5 percent interest rate.

The loans are however written off after 30 years so those who earn more on average at the upper end of the pay scale, and thus more likely to pay off their balances within 30 years, will incur the largest interest charges proportional to their loans.

Higher earners (earning over £27,295) are charged up to an extra 3 percent in interest over standard rates for lower earners - calculated on a marginal basis. This means higher earners will actually be charged interest at up to a 12 percent rate (from their current 1.5 to 3 percent rate).

With RPI predicted to fall back below 3 percent by 2024, the rates are expected fall from September 2024.

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