Alright, first up: don’t panic. We’ll figure this all out. What we know is that there was a pretty shocking The Guardian article that came out recently. In it, the publication claims the student loan interest rate is due to rise by a third to 6.1%. Student loans are usually a tetchy subject as it is, and with this news, we get why you might be a little upset. So, we’re diving into the recent changes to student loans to clear this all up for you.
What are the recent changes to student loans and why is the interest rate increasing?
Righto, with most loans, your student loan has an interest rate. Which means you don’t just pay back what you’ve borrowed. You pay that amount plus a little extra on the top. Currently, students are paying back their student loans with an interest rate of 4.6 per cent.
The current interest rate for student loans is taken from something called the retail prices index (RPI), with an added 3 per cent on top of whatever it is. The UK’s RPI rises and falls according to inflation. In March 2016, the RI was 1.6 per cent, so the student loan interest rate was 4.6 per cent.
This week, the RPI for March 2017 was announced as 3.1 per cent. Putting two and two together, this means that the new student loan interest rate is now 6.1 per cent.
Holy cow. That’s quite an increase.
Yeah. It is. The UK’s inflation surge has been largely attributed to Brexit, as it was observed to drive the decline in the value of the pound since June 2016.
This does mean you’ll be charged a whole lot more dolla on your student loan repayments. But before you panic, let’s take a closer look at how things will change. (Hint: it’s not as bad as you’d think.)
Who’s affected by the recent student loan changes, and how?
So, anyone who’s taken out a student loan on or after 1 September 2012 will be charged between 3.1 per cent and 6.1 per cent, dependent on their income.
Current students will be charged interest whilst they are still at university, but will not start paying them off until they’re in work. Also, they’ll need to be in a role earning more than £21,000 a year.
Those who started university before 1998 will see the interest on their loans rise to 3.1 per cent. Meanwhile, those who started university between 1998 and 2011 won’t see any changes in their interest amount (1.25 per cent)
What does this mean for my student loan repayments? Will I have to re-think my entire budget?
In actual fact, you probably don’t. A Department for Education spokesperson said “No individual will see their monthly repayments rise as a result of interest rates increasing.”
However, this means you’ll be paying off your student loans for a much, much longer time. Martin Lane, managing editor of money.co.uk said, “For graduates trying to get on the housing ladder or save for their future this increase casts a shadow over their long-term finances. Who wants to be paying for university into their 50’s?”
There is a silver lining.
There is one important fact everybody needs to remember. If you don’t pay off your student loan, it will automatically be wiped clean 30 years after you graduate. Which is, theoretically, a good thing for anyone who’s worried, but results in a new problem. All this money the government has lent out will probably never be paid back.
Lane continues, “These new rates make it even less likely students will pay off their loans before it gets wiped after 30 years.”
Save the Student’s Jake Butler has commented on the student loan interest rate changes, saying the increases are ,”worse than expected.”
“It really demonstrates that the interest on loans under the new system is far too high and should be assessed,” he said. He reiterates the weird conundrum the government now has, as inflation has now resulted in “massive amounts of accumulative student loan debt the government will never see.”
Well, that’s that then, we guess. TLDR; you’ll be paying off your student loan for a bit longer than expected, but it might not matter anyway as it’ll get wiped clean in 30 years time. After all that money talk, we reckon it’s time for a biscuit.