Martin Lewis ‘jaw-dropping’ warning as student loan interest rate increased
The amount of money you have to pay for your student loan has gone up again
Everyone with a student loan has been hit with a warning after interest rates were increased by the government this month - but Martin Lewis has spoken about student loans and given a 'jaw dropping' surprise.
The Student Loans Company has announced it is increasing the interest rate on student loans to 7.9 percent.
That’s an increase from May and will apply to everyone with Plan 2, Plan 5 and Postgraduate loans.
Plan 2 applies to those who started their course from September 2012 and Plan 5 to those who started a course after August 2023.
It means that the amount of interest you pay on your loan debt each month will be slightly higher -
The Student Loans Company said: “The Department for Education (DfE) and the Welsh Government has today confirmed a change to the maximum Plan 2, Plan 5 and PG loan interest rate which will be 7.9% in June 2024.
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“The applicable rate of RPI to student loans from 1 September 2023 to 31 August 2024 is 13.5%. This means that the maximum interest rate applicable to Plan 2 loans and the interest rate for PG loans is 16.5%, and the interest rate applicable to Plan 5 loans is 13.5%. However, as the comparable prevailing market rate (PMR) is lower than this, an interest rate cap of 7.9% will be applied to all Plan 2, Plan 5 and PG student loans in June 2024.”
It will come as a blow to those hoping to pay off their student loan debt, which is automatically taken from pay packets for those earning over the minimum threshold for repayments.
But in news that may surprise many trying to pay off their loans, Martin Lewis said via his Money Saving Expert website that actually, you probably don’t need to worry unless you plan to pay off your loan in full because you’re a high earner.
He said: “The jaw dropping fact is the only people who should be overpaying their student loan debt are high earners, free of other debts, who'll never want a mortgage or other loan.
“This will seem odd to some. After all, if you started university in 2013, having taken full tuition fees and maintenance loans each year, that's a total loan of £44,000 – and likely an already scary £5,000+ interest has been added to your statement.
“Student loan statements can lie, as unlike other debt, the interest added ISN'T the interest paid. That depends on future earnings. Some won't repay any interest and most won't earn enough to repay close to all of it.”
In the past, Martin has encouraged people to think of student loans not as a loan, but as a 9 percent tax on earnings.
This is because most people won’t ever pay off their student loans, and the debts are wiped after 25 years anyway.
So for the vast majority of people, it doesn’t matter what the big number on your debt says, because you won’t pay it off before it’s cleared by the government.
Plan 2 student loans are automatically cleared by the government 30 years after you started your course, regardless of how much debt you have left. So if you aren’t going to clear it anyway, you save nothing by overpaying. For Plan 1, it’s 25 years.
