In March, just before the end of the last tax year, the RPI rate adjusted to 2.6%. This meant that the interest on some types of student loan (in reality, an inflation adjustment) will drop in the autumn.

What is the RPI?

RPI is the Retail Price Index is the means by which the Office for National Statistics measures the rate of inflation. Government, Bank of England and economists then use this information in budgeting, interest rate calculations and so on. In real terms, RPI is an examination of how much common goods have gone up in price. This includes a range of goods and services such as your weekly shop and travel. It even covers items you would buy less often such as clothing.

RPI affects how much students will pay back on their loan as the figure is adjusted every September based on the rate calculated in March. That means from this autumn, that means changes to some student loan plans.

What Impact Will This Have on Student Loans?

The really depends on where and when you went to university, and which loan system you applied for which means the year you graduated. In brief:

• Graduates prior to 1998: Although these are Plan 1 loans, the rate is slightly different from that discussed below. The present interest rate is 3.3% but this will drop to 2.4% in September of this year
• Plan 1: This applies to all other students in England and Wales who graduated in 2011 or earlier, and to all students in Northern Ireland and Scotland. As students on this plan are charged interest at a much lower rate than the current changes (1.75%), there will be no amendment to your repayment plan
• Plan 2: This applies to students who attended Welsh and English universities from the 2012 academic year and later are presently paying 6.3% interest on their student loan. In September 2019, this will decrease 5.4%. Those who graduate this summer will pay back the 5.4% if they earn over the threshold

How the Loans System Work

The reduction in the how much students are to pay will come as some relief to most graduates regardless of when they graduated. However, the rate is still much higher than it was around five years ago. It must be reiterated that while both student loan plans have interest calculated differently, there is a threshold to meet before you are required to pay anything back.

• For students graduating before 1998, that threshold is £30,737
• Students on Plan 1 loans that came in after 1998, that threshold is £18,935
• Students on Plan 2 loans which came in from 2012, that threshold is £25,750. Interest accrues at a rate of 2.4% for those earning under £25,725 but at 5.4% £46,305