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When you’re at university, paying off your student loan is likely to be the furthest thing from your mind. Even once you’ve graduated, you probably don’t think about it unless you earn over the threshold limit.

But this might be something worth thinking about now that the interest rate on student loans is set to rise due to inflation. To make sure you understand why this is and how much interest you’ll pay from September onwards, we’re going to take you through the details.

Interest rate hike

Based on figures released from the Office of National Statistics, the Retail Prices Index (RPI) rate of inflation increased to 1.6 per cent in March. During the same period last year, the RPI was 0.9 per cent.

Although the RPI is published monthly, this March statistic is important as it is used to set the interest charged on student loans for the coming September. The Government hasn’t confirmed an increase yet, but this usually happens in the August before term starts.

Remember, the amount you pay won’t increase from September but the total amount you owe is likely to increase. This is because repayment rates – the percentage you pay on whatever you earn over the threshold – are set out separately. If you started uni after 2012, you’ll currently repay 9 per cent of whatever you earn.

How much interest will I pay?

The interest rate of your loan will depend on when you first took out your loan – here’s what you can expect to pay.

Before 1998

Students that started university between 1990 and 1997 will have a current interest rate of 0.9 per cent. Based on the March RPI rate of inflation, it is likely that this will increase to 1.6 per cent from September onwards.

At the moment, you’ll only repay when you earn over £28,828 per year.


Graduates between 1998 and 2011 are likely to pay an interest rate of 1.5 per cent from September. Currently, the interest rate is 0.9 per cent – this is based on March 2015’s RPI rate.

For these loans, the interest rate is based on whichever is lower – the Bank of England base rate of 0.5 per cent plus 1 per cent, or the rate of inflation.

If you started uni during this period, then you will start repaying your loan as soon as you earn more than £17,495 – this will increase to £17,775 on 6th April 2017.

2012 and new starters

While studying and up until the April after they leave the course, students will pay that year’s RPI plus 3 per cent on their student loans – meaning that the RPI increase will affect current students. The current interest rate is 3.9 per cent but this will likely rise to 4.6 per cent from September.

From the April after a student graduates, their loan increases at that year’s RPI rate if they earn an income of £21,000 or less. If they earn £41,000 or above, the interest charged is the maximum inflation plus 3 per cent.

For more information on how this will affect you, lookout for an announcement from the Government in August.

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