A 6% cap on student loan interest was agreed for students in England
The Welsh Government has issued a statement on student loans
The Welsh Government has issued a statement on student loans after a 6% cap on interest was agreed across the border. Welsh graduates and students must wait to hear whether interest rates on their loans will be capped at 6% from the autumn, as agreed in England.
Whilst the Welsh Government has “agreed in principle” to follow the UK Government’s lead and cap the interest rate on plan 2 and plan 3 student loans at 6% from September, that will need to be a decision for whoever is in power after May’s Senedd elections.
Plan 2 student loans cover those taken out for undergraduate courses and Postgraduate Certificates of Education (PGCE) since September 1, 2012 in Wales and July 31 in England. Plan 3 student loans cover postgraduate master’s or doctoral courses for borrowers in England and Wales. Read the biggest stories in Wales first by signing up to our daily newsletter here.
In a statement on Tuesday, April 7 the Welsh Government said: “Any formal decision to proceed in Wales, including Regulations, is a matter for the next Welsh Government and subject to Senedd approval.”
Vikki Howells, Wales’ Minister for Further and Higher Education, said: “I am pleased to support the proposed cap on student loan interest rates because of the protection it will offer for student loan borrowers in Wales.
“A final decision on applying the interest rate cap for Welsh borrowers will need to be taken by the next Welsh Government, following the Senedd election.”
Ministers in England announced the 6% interest rate cap there amid growing anger and worry that higher inflation, especially with current global uncertainty, will hike repayments for many graduates.
Long term criticism that student loans are a debt trap peaked in recent months with cost of living pressure and inflation rates rising.
Paying the loans back depends on a graduate’s salary. But graduates in Wales and England often end up paying tens of thousands more than the original loan amount owing to high and uncertain interest rates added on.
Those who cannot afford to pay for university up front and take out student loans can end up paying far more than their wealthier peers who don’t have to borrow.
This has led to criticisms of a regressive tax on less well off students.
Graduates with plan 2 loans in Wales and England are now paying interest rates based on the retail prices index (RPI) measure of inflation – currently 3% – plus up to 3%, when they earn over £28,470 for loans taken out with Student Finance Wales and £29,385 for loans taken out with Student Finance in England. RPI measures changes to the cost of living in the UK, so when costs rise, as they are, so does RPI.
Plan 2 loan for Wales
Graduates repay 9% of their income once they start earning more than £28,470 a year, £2,372 a month or £547 a week in the UK.
If their income changes, either rising or falling, the repayment amounts will automatically change to reflect this. The loan lasts until it is repaid or cancelled (usually 30 years after graduates become eligible to repay).
With interest rates for student loans based on the RPI there are fears that the war in Iran, which is pushing up prices, will mean RPI rising rapidly.
The National Union of Students said the 6% interest rate cap was a move in the right direction, but not enough.
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