The Government announced on 13 June 2022 that the student loan
interest rate would be set at 7.3% between 1 September 2022 and
31 August 2023, in line with the forecast prevailing market
rates. The Government confirmed that, should the actual
prevailing market rate turn out to be lower than forecast, a
further cap would be implemented to reduce student loan interest
rates accordingly.
The Government has now confirmed that the maximum Plan 2 and the
Postgraduate loan interest rate will be 6.5% between 1 December
2022 and 28 February 2023.
- The prevailing market rate is not defined in law, nor does
any product on the market offer a direct “market rate” comparison
to student loans. The most appropriate market rate comparators
for student loans are the effective interest rates available on
unsecured personal loans, with the Bank of England’s effective
interest rate data (series CFMZ6LI (existing loans) and CFMZ6K9
(new loans)), being the most appropriate benchmark for student
loan interest rates. To determine the “prevailing” market rate, a
12-month rolling average is taken. As such, the prevailing market
rate has been defined as the minimum of the 12-month
rolling averages of the Bank of England’s effective interest rate
data series’ CFMZ6LI and CFMZ6K9.
- Where the Government considers that the student loan interest
rate is too high in comparison to the prevailing market rate, it
will reduce the maximum Plan 2 and Postgraduate Loan interest
rate by applying a cap for a set period of three months (or
longer, if the prevailing market rate remains below the student
loan rate at the next monitoring point). This is done by amending
Education (Student Loan) (Repayment) Regulations 2009. The
prevailing market rate used for setting a cap in a given quarter
is based on the latest CFMZ6LI and CFMZ6K9 data available, which
is the data going up to 2 months prior to the start of the
quarter, e.g. the cap set for between September and November 2022
was based on the end-July 2021 to end-June 2022 data.
- Plan 2 borrowers will continue to repay 9% of their earnings
over the repayment threshold. The repayment threshold for Plan 2
ICR loans is £27,295 for FY22-23.
- Plan 2 ICR loans are those loans taken out for a course
starting after 1 September 2012 (England and Wales).
- Postgraduate loan borrowers will continue to repay 6% of
their earnings over the repayment threshold. The repayment
threshold for Postgraduate loans is £21,000 for FY22-23.
- Postgraduate loans are those loans taken out for Postgraduate
level study.
- Plan 1 ICR loans, those loans taken out for a course starting
before 1 September 2012 are not affected.
