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Student loan interest rate set to rise by a third after UK inflation surge Student loan interest rate set to rise by a third after UK inflation surge
(about 17 hours later)
Students appear to be paying a heavy price for the UK’s inflation surge after the Brexit vote, which will drive the interest rate on their loans up by a third to 6.1%.Students appear to be paying a heavy price for the UK’s inflation surge after the Brexit vote, which will drive the interest rate on their loans up by a third to 6.1%.
The rise in inflation, driven by a decline in the value of the pound since June, means students will be charged substantially more interest on their loans, despite the fact that many other consumers are benefiting from record low interest rates. Personal loans from high street banks have rates starting at 2.8%, while five-year fixed-rate mortgages are available from 1.29%.The rise in inflation, driven by a decline in the value of the pound since June, means students will be charged substantially more interest on their loans, despite the fact that many other consumers are benefiting from record low interest rates. Personal loans from high street banks have rates starting at 2.8%, while five-year fixed-rate mortgages are available from 1.29%.
Student loan interest rates are tied to March’s retail price inflation figure, published on Tuesday. At the moment, new starters and current students are charged 4.6% – the March 2016 RPI figure of 1.6%, plus 3% – on their loans. But from September this will rise to 6.1%, made up of the March 2017 figure of 3.1%, plus 3%.Student loan interest rates are tied to March’s retail price inflation figure, published on Tuesday. At the moment, new starters and current students are charged 4.6% – the March 2016 RPI figure of 1.6%, plus 3% – on their loans. But from September this will rise to 6.1%, made up of the March 2017 figure of 3.1%, plus 3%.
As a result current students and a sizeable number of graduates will see the interest rate on their student loan jump by more than 24 times the official Bank of England base rate. As a result current students and a sizeable number of graduates will see the interest rate on their student loan jump to more than 24 times the official Bank of England base rate.
Those who took out their student loan on or after 1 September 2012 and who have now graduated will from this autumn be charged between 3.1% and 6.1%, depending on their income.Those who took out their student loan on or after 1 September 2012 and who have now graduated will from this autumn be charged between 3.1% and 6.1%, depending on their income.
Students are also paying the price for being tied to the RPI rate, which is typically higher than the consumer prices index figure and is now relatively little-used. The latest CPI inflation figure for March was 2.3%.Students are also paying the price for being tied to the RPI rate, which is typically higher than the consumer prices index figure and is now relatively little-used. The latest CPI inflation figure for March was 2.3%.
Jake Butler, an expert at money advice website Save the Student, said: “I was expecting an increase to student loan interest this year, but this is worse than expected. It really demonstrates that the interest on loans under the new system is far too high and should be reassessed.”Jake Butler, an expert at money advice website Save the Student, said: “I was expecting an increase to student loan interest this year, but this is worse than expected. It really demonstrates that the interest on loans under the new system is far too high and should be reassessed.”
However, the website pointed out that those who started university after September 2012 do not start repaying their loan until they are earning more than £21,000 a year, adding: “Unless you start off with a graduate salary of higher than £30,000, it’s unlikely you will pay off your full loan and interest before it’s wiped after 30 years anyway.”However, the website pointed out that those who started university after September 2012 do not start repaying their loan until they are earning more than £21,000 a year, adding: “Unless you start off with a graduate salary of higher than £30,000, it’s unlikely you will pay off your full loan and interest before it’s wiped after 30 years anyway.”
Butler said that in reality, the interest rate increase was simply adding to the “massive amounts” of accumulated student loan debt “that the government will never see”.Butler said that in reality, the interest rate increase was simply adding to the “massive amounts” of accumulated student loan debt “that the government will never see”.
If an individual started university between 1998 and 2011, the interest rate they are currently being charged is 1.25%, and will stay at this level come September. This is because it is based on whichever is the lowest out of RPI or the Bank of England base rate – currently 0.25% - plus 1%, said Save the Student.If an individual started university between 1998 and 2011, the interest rate they are currently being charged is 1.25%, and will stay at this level come September. This is because it is based on whichever is the lowest out of RPI or the Bank of England base rate – currently 0.25% - plus 1%, said Save the Student.
For those who started university before 1998, the rate they are currently charged is 1.6%, but this will rise to 3.1% in September because it is based on the March RPI figure alone.For those who started university before 1998, the rate they are currently charged is 1.6%, but this will rise to 3.1% in September because it is based on the March RPI figure alone.
In the US, most types of federal student loan currently have a rate of 3.76%.In the US, most types of federal student loan currently have a rate of 3.76%.
• This article was amended on 12 April 2017 to clarify that the interest rate on student loans is rising to more than 24 times the official Bank of England base rate, not as previously stated