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The Student Loans Company, which is jointly owned by the Department for Education and Skills and the Scottish Office, has hiked the interest rate on loans from 2.4% to 4.8%.

The rate is linked to the retail prices index, an inflation measure, for the year to March, which this year was 4.8% - in March 2006 it was 2.4%.

The last time the rate was anywhere near this level was in 1991. A spokesperson for the Student Loans Company said: 'This rate is unusually high. I don't think anyone would expect it to be 4.8% again and we expect it to reduce next year.'

The rate charged is fixed once a year and changes from September. Student loans start accumulating interest as soon as they are paid out and continue to do so until they are repaid.

Unlike a commercial loan from a bank, the student loan rate is variable - it can change every 12 months.

Graduates start repaying their student loans from the April after they graduate, once they are earning at least £15,000 a year and repayments are calculated as 9% of their income.

As the typical graduate leaves university with an outstanding student loan of some £12,000, at the current rate of 2.4%, £288 would be added if no repayments were made but with the rate at 4.8%, this would result in £576 being added in interest.

The number of student loans being taken out annually has more than doubled in the past twelve years from 430,400 to 880,700 per academic year.

Over the past decade British students have built up an astonishing £27bn mountain of debt, equivalent to half of New Zealand's GDP - forcing almost 10% to consider bankruptcy as a solution.

This year students face a total debt of £3.2bn upon graduation, an increase of 167% since 1997 - eclipsing the 51% rise in graduate salaries from £15,500 to an average of £23,451.

Next year the government is introducing five-year repayment freezes for graduates and it is also increasing the percentages of students receive non-repayable grants.

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