Graduates and students in England will have to pay up to 12% interest on loans this autumn compared to 4.5% currently, according to the Institute for Fiscal Studies (IFS).
For those currently enrolled at university in England, interest is calculated by adding 3% to the retail price index (RPI) measure of inflation.
The IFS said, "Today’s reading for RPI inflation means that the maximum interest rate, which is charged to current students and graduates earning more than £49,130, will rise from its current level of 4.5% to an eye-watering 12% for half a year unless policy changes (the interest rates for low earners will rise from 1.5% to 9%)."
This is the highest rate seen since tuition fees for university students in England were raised to £9,000 in 2012.
According to IFS, sky-high interest rates may discourage some prospective students from attending university.
At 9%, current RPI inflation rate is much higher than last year’s reading of 1.5%, reflecting the big rise in the cost of living over the past year, added the IFS.
"High-interest rates for student loans are not only vastly more than average mortgage rates, but also more than many types of unsecured credit, with the IFS stating "student loan borrowers might legitimately ask why the government is charging them higher interest rates than private lenders are offering.
"Unless the government changes the way student loan interest is determined, there will be wild swings in the interest rate over the next three years," said Ben Waltmann, the IFS's senior research economist.
"The maximum rate will reach an eye-watering level of 12% between September 2022 and February 2023."
The Treasury announced that from 2023 students in England will have to repay their loans over a period of 40 years instead of the current 30-year period.