Written question asked by Lord Willis of Knaresborough (Liberal Democrat), in the House of Lords. It was answered by Lord Henley (Conservative) on Thursday, 15 September 2011.

Higher Education: Student Loans

Question: To ask Her Majesty’s Government when the current rate for the repayment of student loans was agreed, what was the estimated retail price index at that time; and whether there are proposals to limit either the three per cent rate of interest or the retail price index-based level of interest if the retail price index remains at current levels.

Answer: The Education (Student Loans) (Repayment) Regulations state that for the current income contingent repayment (ICR) scheme (loans taken out prior to September 2012), the rate of interest will be the lower of the retail prices index (RPI) or the bank base rate (for a specified group of banks) plus 1 per cent. As the current bank base rate (0.5 per cent) plus 1 per cent is lower than the March 2011 RPI (5.3 per cent), the interest cap has taken effect. This means that from 1 September 2011 until further notice, the interest rate will be 1.5 per cent. This rate would rise should the bank base rate rise, but for the period 1 September 2011 to 31 August 2012, it can, in any event, be no higher than 5.3 per cent. Under the new repayment scheme (post-September 2012 ICR loans), the interest rate will vary with the borrowers income, starting at RPI for those earning £21,000 or less, up to a maximum of RPI + 3 per cent for those earning £41,000 and above. There are no plans to limit either the additional 3 per cent rate of interest, where it applies, or the retail prices index-based level of interest.

Secondary information