The Government uses the Retail Prices Index (RPI) figure to calculate the rate of interest on student loans - this figure is checked annually each March. Last year the figure returned was 0.9 percent, however this March the RPI was 1.6 percent.
The interest rates for student loans vary depending upon when the loan was issued. The UK currently has had three different types of student loan and the rates for each will be as follows:
Post-2012 Student Loans
The interest on these loans is calculated on the RPI plus 3 percent. So, based on the March 2016 RPI means the new interest rate from September will be 4.6 percent a rise from the current 3.9 percent.
However, it gets a little more complicated as the above rate is for those who graduated before last summer. Those graduating after have a sliding scale for the interest rate so anyone earning over £21,000 p.a. will be charged interest at 1.6 percent rising to 4.6 percent for those earning over £41,000 p.a.
1998-2011 Student Loans
These loans are just charged interest at the same rate as the RPI, unless the Bank of England base rate is more than 1 percent lower than the RPI - then it is capped to 1.25 percent. So, it used to be 0.9 percent but from September will rise to 1.25 percent.
Pre-1998 Student Loans
These loans don't get the cap benefit that the 1998-2011 loans got, so from September the rate will rise to 1.6 percent.
In other student loan changes, the deferment threshold will change for pre-1998 loans. Those with these loans can apply to defer their repayments for one year if their income is lower than a particular sum. This sum was £28,828 but will rise to £29,126.
The repayment threshold for repaying pre-2012 loans is currently £17,495 and will rise to £17,775 next April. Post-2012 loans have had their threshold frozen at £21,000 until consideration for change in April 2021. You can estimate your tax changes for 2017 using our 2017/2018 custom tax calculator.