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Highlights
- From September, the maximum interest rate on student loans would be set as 6.3%, as per DfE.
- The move would help borrowers having a student loan balance of about £45,000 save approximately £210 per month in the form of accumulating interest.
- Reducing interest rates might not help the current students coming from poorer households.
Amid the escalating cost-of-living squeeze, ministers have stepped up for the second time this summer to reduce the interest rates on student loans. On Wednesday, the Department for Education (DfE) announced that from September the maximum interest rate would be set as 6.3%. The maximum rate was already expected to be fixed at 7.3%, following the ministers’ intervention in June to reduce it from the 12% that it potentially may have got to by September, considering a 3% addition to the previous inflation figure.
According to the DfE, approximately £210 per month would be saved in the form of accumulating interest by a borrower having a student loan balance of about £45,000 with the new rate of 6.3% in comparison with the 12% rate. This figure is calculated on the loan’s total value. The monthly repayments of the student loan aren’t calculated on the basis of the borrowing amount or the interest rates, but on the basis of income. 9% of a graduate’s income is paid above a repayment level of £27,295 per year.
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The move to reduce the rates has been appreciated by the Institute for Fiscal Studies (IFS), but it believes that the move would potentially benefit only the wealthier graduated and not the currently economically weaker students, who are struggling more amid the rising inflationary pressures. The repayments of students coming from poorer households won’t be impacted, and even the graduates paying back the entire loan amount would potentially witness see their repayments falling for decades yet.
Changing interest rates impact the profitability of banks as interest payments are the source of income for banks. As student loan interest rates go down, UK investors can keep an eye on 3 of the big four banks suggested by Kalkine Media® which may be impacted by the news.
HSBC Holdings plc (LON: HSBA)
HSBA shares were witnessing a fall of 0.13% at around 12:00 PM (GMT+1) on Wednesday and were trading at GBX 552.80. The FTSE 100 bank has offered investors with positive returns on one-year and year-to-date (YTD) basis as of 10 August, which stand at 34.53% and 23.28%, respectively. The RSI (Relative Strength Index) value of HSBC stood at 61.64 during intraday trading, indicating the interest in the stock among market participants. At present, the bank is offering a dividend yield of 4.1% a year to investors and it has a positive earnings per share (EPS) of 0.62.
Natwest Group PLC (LON: NWG)
NWG shares were witnessing gains of 0.83% at around 12:00 PM (GMT+1) on Wednesday and were trading at GBX 256.50. The FTSE 100 bank has offered investors with positive returns on one-year and year-to-date (YTD) basis as of 10 August, which stand at 18.20% and 13.65%, respectively. The RSI value of NatWest stood at 73.42 during intraday trading, indicating that the market participants are keeping a close watch on the stock. At present, the bank is offering a dividend yield of 4.3% a year to investors and it has a positive EPS of 0.25.
Lloyds Banking Group PLC (LON: LLOY)
LLOY were witnessing gains of 0.88% at around 12:00 PM (GMT+1) on Wednesday and were trading at GBX 45.39. The performance of the FTSE 100 bank has deteriorated lately and its returns on one-year and year-to-date (YTD) basis stand in the negative zone as of 10 August, at -2.73% and -5.04%, respectively. The RSI value of NatWest stood at 58.32 during intraday trading, indicating a decent level of interest in the stock among market participants. At present, the bank is offering a dividend yield of 4.7% a year to investors and it has a positive EPS of 0.08.