Interest rate on student loans to be capped
Interest on student loans will be capped, in an attempt from the government to draw a line under a political row which has engulfed Westminster.
Labour has announced that maximum interest rates on Plan 2 and Plan 3 student loans will not rise beyond six per cent from the next academic year starting in September.
The Department of Education has framed the intervention as action taken to ease cost pressures from the war in the Middle East, which could lead to a surge in borrowing costs and a jump in inflation.
Graduates with Plan 2 loans pay interest rates between retail price index (RPI) inflation, a less reliable measure of price growth, and RPI plus three per cent.
The level of interest rate paid is dependent on their earnings.
Students on Plan 2 and Plan 3 also pay RPI plus three per cent while they are studying.
Interest rates ceiling for graduates
Ministers said that the measures would protect degree-holders from the worst impacts of the war in Iran, which could lead to inflation racing past the five per cent mark within months.
“We know that the conflict in the Middle East is causing anxiety at home, and while the risk of global shocks is beyond our control, protecting people here is not,” skills minister Jacqui Smith said.
“Capping the maximum interest rate on Plan 2 and Plan 3 student loans will provide immediate protection for borrowers, supporting those who are most exposed within this already unfair system.
“We’re acting now to defend against the consequences of far-away conflicts in an uncertain world.
“More broadly, we’re bringing back maintenance grants and continuing to look at the broken Plan 2 system we inherited, and the wider student finance system, to make it fairer for students, graduates and taxpayers.”
Labour pinch policy from Tories
The issue of costly student loans came to the fore in SW1 after Tory leader Kemi Badenoch criticised Rachel Reeves’ decision to freeze the salary threshold for Plan 2 student loans at £29,385 for three years.
Reeves said the measure on student loans was “fair and proportionate” as it sought to address a “balance” between tax intake and public expenditure.
The Chancellor also said the wider system was “broken” but added it was further down the list of priorities of issues for the government to solve in the short term.
The freeze will mean more workers earning above that amount are dragged into making larger repayments on their student loans.
The Tories have vowed to cut the rate of interest charged on Plan 2 student loans, though the Labour government’s measure on the cap appears to pinch the idea.