When does my student loan get written off? Repayment plan cut off dates and UK interest rate rise - explained

Student loan interest rates are rising because they are linked to RPI inflation - a measure that’s shown the cost of living in the UK has rocketed

<p>Student loan interest rates for recent graduates are set to go skywards from September (image: Getty Images)</p>

Student loan interest rates for recent graduates are set to go skywards from September (image: Getty Images)

New record highs of inflation have shown the cost of living in the UK has soared to levels not seen since the early 1990s.

But the figures have also revealed that student loan interest rates, which are linked to the Office for National Statistics RPI measure of inflation, are going to push up some recent graduates’ debt levels later this year.

From September, increases of up to 12% could be on the cards for those who have been to university since 2012 - although there will be no change to the rate of repayments that come out of their monthly wages.

A silver lining for those who have been impacted is that they will not necessarily have to repay their entire loan.

The taxpayer eventually writes off all student loans - although when this happens differs depending on when you studied (image: Getty Images)

So when are student loans written off - and how will they change under new government plans?

Here’s what you need to know.

How could student loan interest rates change?

English or Welsh people who have studied at university since 2012 have had to take out student loans to cover their tuition fees and living costs.

Interest is added to student loans both during and after a student’s course - although what you repay on earnings over the bottom-end threshold of £27,295 is fixed at 9%.

So interest increases the size of student debt, while repayments will always remain at the same rate.

While the interest rate for students currently studying for their degree sits at 4.1%, those who have graduated have their interest rates set by the March RPI plus up to 3% (depending on how much they’re earning) for the academic year - i.e. September to August.

The change to student loan interest rates is most likely to affect higher earning graduates (image: Getty Images)

Interest is added to student debt even if they earn below the repayments threshold of £27,295.

This is how interest rates differ depending on what you earn:

  • £27,295 or less (current RPI rate - 1.5%)
  • £27,296 to £49,130 (RPI rate plus up to 3%)
  • Over £49,130 (RPI rate plus 3%)

However, given the RPI for March 2022 has risen to a record high of 9%, the lowest earning graduates will see their interest rate rise six-fold while the highest earners are set to face an interest rate of 12% from September 2022.

Unless the government intervenes, this rate will only apply for six months due to a law that means student loan interest rates cannot rise above unsecured commercial loans on the High Street.

It will still mean high-earning graduates with a typical loan balance of £50,000 will see another £3,000 in interest added to their debt.

According to the Institute for Fiscal Studies (IFS), this means rates should drop to around 7% by March 2023 before fluctuating between 7% and 9% for 18-months until September 2024, when they will go down to 0% for six months.

The IFS estimates they will then pop back up to around 5% by September 2025.

For those beginning degree courses from September 2023, the student loan system will change as interest rates will only be set by the RPI and no additional percentages will be added.

When do student loans get written off?

While fluctuating interest rates are moving the goalposts for the highest earning graduates, they are unlikely to change things for those on low-to-middle incomes given student loans issued since September 2012 are written off by the government 30 years after repayments start.

If you have graduated, your first repayments will come out of your paypacket from the following April.

So if you finished your course at the age of 21, you’ll be paying off your student debt until you turn 51 or 52.

Higher earning graduates are more likely to finish paying off their student loans ahead of the cut off date.

For students who took out loans before the 2006/07 academic year, your student loan will be written off once you turn 65.

For those who took them out between the 2006/07 and 2011/12 academic years, the cut off is 25 years after the April your repayments started.

Under the rules coming in for those studying from September 2023 onwards, loans will be written off 40 years after repayments begin.

But because the government has announced a lower repayments threshold of £25,000 for these future graduates, it means to low-to-middle income former students paying more towards their student loans for longer.