- April 14, 2024
- Posted by: legaleseblogger
- Category: Related News
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# Understanding the Increase in Student Loan Payment
## Background
I am currently on plan 2 for student loan repayment after graduating in 2018. However, I have yet to begin making payments due to various circumstances such as moving back to my home country, pursuing further education, being unemployed, and earning below the minimum repayment threshold. Despite updating my details annually, I recently noticed a significant increase in the repayment amount.
## Concerns
One major concern I have is the sudden spike in the interest rate, which now stands at a seemingly exorbitant 7.8%. This drastic change has left me questioning the validity and fairness of such a high interest rate.
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Hi /u/jens998, based on your post the following pages from our wiki may be relevant:
* https://ukpersonal.finance/student-loans/
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^(These suggestions are based on keywords, if they missed the mark please report this comment.)
https://www.gov.uk/guidance/how-interest-is-calculated-plan-2
7.8% is this month’s interest rate *maximum* cap (it is re-evaluated every month based on commercially available loans). But it’s most likely not the rate you get charged; that depends on your income.
See [this information page from Martin Lewis](https://www.moneysavingexpert.com/students/repay-post-2012-student-loan/)
> Student loan interest rates are usually based on the RPI rate of inflation (the rate at which prices rise). While studying, until the April following graduation, you’re charged RPI + 3%. After that it depends on your annual earnings…
>- Earn under £27,295/year. Interest rate = RPI
>- Earn over £49,130/year. Interest rate = RPI + 3%
>- Earn from £27,296 to £49,130. It rises gradually from RPI to RPI + 3%. For example, earn midway, so £38,213, and your rate’ll be RPI + 1.5%
In 21/22 the rate for people earning under the £27,295 threshold was 1.5% (RPI at the time). For people earning over £49,130 it was RPI + 3%.
Since you were unemployed, you were only charged 1.5% interest.
Now RPI is higher, (it got above 10%, so the interest caps came into play), it’s floating around the 7% mark.
Assuming you’re now earning above £27k (or whatever the repayment threshold is in your country), you get charged somewhere between RPI and the cap, and if you’re earning above the upper threshold, its RPI + 3% or the cap.
Found your thread in the spam bin, not sure why it was put there, but read some of these: https://www.google.com/search?q=student+loan+rate+site:reddit.com/r/UKPersonalFinance