The U-turn came after a protest group launched by the National Union of Students (NUS) on Facebook attracted more than 5,000 members.
The NUS said that the sudden withdrawal of HSBC's free £1,500 overdraft facility in July would have left students who had borrowed the maximum amount with a yearly interest bill of £140.
Upgrading to a premium service with a monthly charge to take advantage of a free overdraught facility would have cost almost £120 a year.
Ama Uzowuru, vice president for welfare at the NUS, confirmed that HSBC had contacted him to discuss the online campaign.
"Following our discussions and negotiations, HSBC has decided to freeze interest on 2007 graduate overdrafts up to £1,500 with future policy subject to review," said a statement from Uzowuru on the Stop the Great HSBC Graduate Rip-Off Facebook group.
"All those recent graduates who have been subject to additional interest charges this August will be eligible for a refund."
Uzowuru added that the NUS had been planning action at HSBC's head office in Canary Wharf on 4 September, but that this had been suspended following the development.
Andy Ripley, head of product development at HSBC, claimed that the company had taken note of the protest.
"Like any service-orientated business we are not too big to listen to the needs of our customers," he said.
Wes Streeting, vice president for education at the NUS and founder of the Facebook group, said that the online campaign had allowed the union to mobilise students during the summer holiday period.
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