New interest rates on student loans coming into effect later this year could mean that high-earning graduates will find themselves repaying more than double the amount they borrowed, according to The Sunday Times.

From September, graduates will be facing an interest rate of up to 4.6 per cent when they repay money borrowed to cover the tuition fees paid to their university, and the maintenance loans paid directly to them during their studies.

The 4.6 per cent figure reflects a 1.6 per cent inflation rate according to the retail price index (RPI) in March, in addition to the three per cent interest accrued on student loans across the board, and is far higher than the rates attached to mortgages and other loans.

The new interest rate, which has risen from 3.9 per cent in 2015/16, will also affect the loans of current students, whose loans also accrue interest of three per cent plus RPI whilst studying and until the April after finishing their course.

“There is a real risk it will very soon not be seen as financially worthwhile to go to university,” said Anthony Seldon, Vice-Chancellor of Buckingham University. The fresh concerns come less than a month after an Intergenerational Foundation (IF) report found that the amount graduates can expect to earn above those with no degree is becoming ever more modest.

To give an example of what the new interest rates could mean in practise, the financial advisory group, LEBC projects that a graduate who takes out a loan of £51,600 – the maximum available to students undertaking a three-year course outside London – and goes on to earn a starting salary of £40,000, rising to £67,000 after 30 years will repay a total of £105,145 over the course of 27 and a half years. That’s a discrepancy of £53,545 between the borrowed sum and the repaid sum.

Such examples will concern for Cambridge graduates, since according to last month’s IF report, while the so-called ‘graduate premium’ may be on the decline, an Oxbridge degree is often treated as the “first filter” for graduate jobs, and that those leaving Oxford or Cambridge with a first class degree can still expect a £400,000 boost to their lifetime earnings.

Justin Modray, founder of Candid Financial Advice,  said that under the new rate, if graduates earn less than £51,00 “the repayments will not be enough to reduce your overall debt”, and will instead merely service the interest being accumulated.

The analysis of the effect of impending interest rates will further exacerbate longstanding concerns over the repayment of student loans.

It was announced last month that universities would be able to raise fees to £9,250 from 2017 and in November, the threshold at which graduates repay loans was frozen at £21,000, where it will remain into the 2020s. The threshold had previously been set to rise in line with average earnings, and the freeze prompted anger from the National Union of Students (NUS), with Vice President for Higher Education Sorana Vieru saying that the government had “betrayed students.”  

Bahram Bekhradnia, president of the Higher Education Policy Institute think tank also addressed this, calling the move away from linking the threshold with average earnings “absolutely disgraceful” and that the government finds itself in “a stupid and immoral position.”

The new interest rates are likely to be one of a multitude of issues protested at an NUS and UCU (University and College Union) demonstration planned for Saturday 19th November, which they hope “will represent a rallying call for free, accessible and quality further and higher education across the UK, and to demand an end to the marketisation of university and college education.”