The interest rates on student loans are set for a steep rise to as much as 6.1 per cent this year, as a result of an increase in inflation in March. The latest CPI inflation figure for March was 2.3%.
Current students won't pay this rate of interest until after they have finished their studies.
Personal loans from high street banks have interest rates begin at 2.8%, while five-year fixed rate mortgages are available from as low as 1.29%. With March's RPI standing at 3.1%, as announced yesterday, this means students will be hit with interest charges of up to 6.1% from September.
Student loans, however, are tied to the inflation rate as calculated by the retail price index (RPI), which tends to be higher than the rate measured by the consumer price index.
Even lower-earning grads don't get off lightly.
"Unless you start off with a graduate salary of higher than £30,000, it's unlikely you will pay off your full loan and interest before it's wiped after 30 years anyway", Butler added.
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As a result, those earning £21,000 or less will see their loan increase by 3.1pc, while loans held by those earning £41,000 or more will grow by 6.1pc.
As well as recent students, graduates who began university pre-1998 will see their student loan interest rates increase, from 1.6% to 3.1%, though the amount they earn before they have to repay their debt will also rise to £29,126.
These students are charged interest at the same rate as the RPI figure, meaning their rate will rise from 1.6% to 3.1% from September. This is because it is based on whichever is the lowest out of RPI or the Bank of England base rate - now 0.25% - plus 1%, said Save the Student. It's clear the system's broken when we're forced to pay even more than America's famously indebted students. Graduates are being driven so deep into debt that the government will never see their loans repaid.
Speaking to The Independent, Estelle Clarke, a legal advisor and board member for the Intergenerational Foundation think tank, argued the government loans are sold deceptively, tying students into contracts with rates which are closer to 6.6 per cent. Not to mention the fact that many of our European neighbours don't charge their students for university at all.
The current headline rate is 4.6%, meaning the interest rate will have increased by a third in one year.
"This is an inexcusable assault on the vulnerability of students with no alternative but to go along with the government's student finance system".
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