The student loan interest rate will now be capped at 6.3% from the autumn in England & Wales after todays announcement by the department of education (DOE).
It had been due to rise from the current 4.5% to 7.3%, but has been changed to “align with the most recent data on market rates” for loans.
England’s universities minister said the student loan interest rate will be capped as she wanted to “provide support” amid the rising cost of living.
But the Institute for Fiscal Studies (IFS) said the change did “nothing at all to protect current students” having also previously saying Student loans reform is a leap into the unknown.
Student loan interest rates will be reviewed again in December.
The interest rate on the loan for those currently at university in England and Wales is calculated by adding 3% to the retail price index (RPI) – a measure of inflation which indicates the rate at which prices are rising.
The RPI figure confirmed in April set the rate for the academic year. Meanwhile, the IFS predicted the maximum rate on student loans would jump from 4.5% to 12% from September this year.
Subsequently, in June, the government said the rate would be capped at 7.3% to provide “peace of mind for graduates” to help combat the rising effects of inflation .
“We understand that many people are worried about the impact of rising prices and we want to reassure people that we are we are stepping up to provide support where we can,” she added.
The Welsh government said it would follow suit.
The announcement from the DOE does not change the amount that borrowers repay each month – it changes the total amount that they owe.
Ben Waltmann, senior research economist at the IFS, said most graduates’ repayments would not be affected by the latest adjustment.
“Only the minority of, mostly high-earning, graduates set to pay off their loans in full will ever actually benefit from this,” he said – adding that it would reduce a typical student loan balance by about £100 this autumn for recent graduates.
“Importantly, this does nothing at all to protect current students from the rising cost of living.”
IFS analysis suggests that in the coming academic year, the real-terms value of maximum maintenance loans – for students from the poorest backgrounds – will fall to its lowest level in seven years.
Commenting on the research, Mr Waltmann said: “Unless the government changes course, students from the poorest families will be at least £100 out of pocket – per month.”
For students starting degree courses from 2023, the interest rate will be fixed at a lower level.