Labour says government adding £16,000 to graduate debts by ‘rigging’ student loan interest rates

Follows similar criticism by Treasury Select Committee chair Nicky Morgan earlier this year

Graduates are facing another hike in the interest rate applied to their debts this year (Reuters)

Labour has accused the government of using “rigged” interest rates for student loan debt, costing graduates up to £16,000 in additional repayments.

According to House of Commons Library analysis, the debt is higher because the government uses the retail price index inflation measure to calculate interest on the loans, rather than the consumer price index.

In April, it emerged that graduates will face a 6.3 per cent hike in the rate applied to their loan from this autumn, due to an increase in inflation.

The government dropped use of the RPI measure for uprating the value of public sector pensions in 2011, leaving workers £650 a year worse off, Labour said, but continues to use the measure to drive up student debt.

“The Conservatives are rigging interest rates to ramp up costs for students. It’s not enough that they’ve saddled graduates with an average of £50,000 in debt, they’re now charging an additional £16,000 on their loans,” said Peter Dowd MP, Labour’s shadow chief secretary to the Treasury.

“The government is cherry-picking inflation measures to maximise profits. They’ve used one measure to cut workers’ pensions and another to drive up student debt, simultaneously robbing the old and the young. They need to end this rip off and revert to the consumer price index.

“The next Labour government will abolish tuition fees to ensure education is a right for all, not a privilege for a few.”

Labour’s warning comes weeks after the Treasury Committee chair, Nicky Morgan, who is also a former Tory education secretary, criticised the government for its “absurd” use of the “flawed” RPI measure to calculate interest on student debt.

“As RPI has been de-designated as a national statistic, the committee has urged the government to abandon its use to calculate student loan interest rates in favour of CPI,” Ms Morgan said in May.

“In its response to the committee’s report, the Department for Education acknowledged the flaws of RPI, but argued that continuing its use has provided consistency over time.

“Continuing to use a measure that it readily admits is flawed, on the grounds of consistency, is absurd; it guarantees that student loan interest rates will be consistently flawed.”

The Independent approached the government for a comment but did not get a response before publication.