Student debt remains a concerning problem for both those who have already graduated and those currently accruing interest on loans they’re relying on now. In a recent analysis, it was revealed that Rishi Sunak’s government doubled the amount of money from interest on student loans.

This was over double the rate that the Bank of England sets for interest rates.

Those figures in detail

The debt accrued on interest alone for the financial year 2022-2023 was £4.8bn. Comparatively, the prior year’s figure was less than half of that at £2.3bn. This despite measures in 2022 set out by ministers to cap the amount of interest on such loans.

Every year, students borrow a further £20bn in loans in England (numbering around 1.5 million). The current value of all outstanding student loans is believed to be around £180bn at present.

Spiralling interest rates

In autumn 2022, DfE announced a new 6.3% interest rate, increasing more recently to 6.9%. We expect a further rise to 7.3% in June 2023. These concerning changes were introduced – the government said – to reflect rates offered by high street banks on unsecured loans. However, it must be noted that this moving cap prevented interest rates rising to 12% in summer 2022.

Average debt among students who started their degree course in the academic year 2021-22 will graduate with an average forecast debt of £45,800.

Note that students do not need to pay this debt back if they do not earn enough. Terms and conditions apply depending on which type of loan and when the student graduated. Around 20% of students from this academic year are expected to fully pay off that debt.

Claim: This punishes poorer students

Plan one students (those who graduated prior to 2012) are reportedly hit the hardest. Their interest rates have gone from 1.5% to 5% in just one year. Plan one loans are typically charged the lower rate of either RPI, or BoE rate plus an additional 1%.

Concerns have been raised across the board of how these measures are driving further divide between poorer and wealthier students. Many have stated that the interest on Plan 2 and later loan schemes are too high, calling on the government to lower them to reflect its own borrowing.

This creates further difficulties in which those whose parents cannot afford to support them take on more debt. Essentially, those from higher socioeconomic backgrounds are less likely to rely on student loans.

A government spokesperson has said that from the next academic year, interest rates will revert to RPI so that students don’t repay more than they borrowed (adjusted for inflation).