Students face higher loan costs

Nearly three million students and graduates are likely to see hefty increases in their annual loan repayments after rocketing petrol prices drove inflation higher last month.

The Retail Prices Index measure of inflation in March – which is used to re-set the level of interest payable on student loans in the autumn – rose to 4.4 per cent last month, the highest level since September 2008.

This will come as a shock to graduates and those still at university, who are either paying no interest or even have negative rates of interest.

More than 2.6 million people who took out student loans after 1998 now pay zero interest, while around 300,000 graduates with outstanding loans taken out before 1998 are enjoying a rate of minus 0.4 per cent.

The current rates were set last March, when RPI turned negative for the first time in 50 years.

It is not yet clear exactly what the change in loan rates will be in September but student loan borrowers are expected to face a significant increase.

Yesterday's figures from the Office for National Statistics showed that the Consumer Prices Index measure of inflation raced higher last month, to 3.4 per cent from three per cent in February after petrol prices rose by 2.7 per cent in the month.