When the present system of student loans was introduced in 2012, it probably seemed like a good idea. This delusion was encouraged by an inflation rate that year of 3.2 per cent, which had just declined from 5.2 per cent the previous year. This was followed by a period of generally low inflation — in the years from 2012 until the recent inflationary spiral the pound had an average inflation rate of 2.32 per cent — and the UK enjoyed record low interest rates.
So, the student loans system, which is inextricably linked to inflation rates, was able to bed into the academic milieu during a period of low inflation which lent it a deceptively innocuous patina. Now, suddenly, with inflation surging, its destructive potential is being exposed. According to the Institute for Fiscal Studies, students who have been on Plan 2 loans from Student Finance England (SFE) since 2012 will now have to pay higher rates of interest than homeowners paying off mortgages.
The maximum rate on publicly-supported loans for tuition fees and maintenance costs paid by those earning £49,130 or more will soar from 4.5 per cent to 12 per cent, equating to £3,000 in interest charges over a six-month period. This is the highest interest rate levied on student loans since the questionable decision to increase tuition fees to £9,000 in 2012.
