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Government! Keep your promise and SHRINK student loans!
Everyone with a student loan should see it reduced from September, as inflation’s now negative. Yet even when pushed hard the Government won’t confirm this'll happen.
Here's a quick Q&A on all the details.
Q. Why should loans shrink?
A. They’re set at the rate of inflation. Specifically, every September it changes based on March’s Retail Prices Index (RPI) rate. Today, that was revealed as MINUS 0.4% so, from September, student loans should be reduced by 0.4% over the year.
Q. Why are they at the rate of inflation?
A. It's a binding principle that there should never be a “real cost” to student loans. Inflation is the rate at which prices rise. Thus, borrow £1,000 which’d buy ten shopping trips worth of goods, and you’ll only pay back whatever it then costs to buy the same ten shopping trollies, so while the actual price changes, your purchasing power isn’t diminished.
Q. What's the current rate?
A. It depends on when you started uni.
Pre-98 starters. These loans are at 3.8%, the RPI figure from March 2008.
Post-98 starters. Here the current rate's 1.5%, as there was a special clause invoked for the first time this year saying if a basket of banks' interest rates, plus 1%, is lower than inflation, it should drop to that, and it has.
Q. What's the government said?
A. On 17 March, speaking on pre-98 loans Higher Education Minister David Lammy said “The interest rate for the 2009/10 year will reflect the RPI… consistent application means… over the lifetime of the loan, the borrower will repay in real terms no more than was borrowed.” (see full text).
Yet speaking today, the Government's still saying it can't confirm September's rate; but my suspicion is expect an announcement in the next fortnight.
The only get out clause seems to be that the phrasing “over the lifetime” means it could say that because the special clause meant some loan holders paid less than inflation this year, they needn’t drop the rate in September. Yet odds are all student loan holders will see their loans shrink from September. If not, this site will launch a campaign (and we know the Government department is reading this).
Update Note by Martin 9pm 21 April. If you're wondering what the get out clause here is, as many think below. The only route I can see is that for post-98 loans it will argue the "over the lifetime of the loan" clause means it needn't match RPI for post-98 studets and as its been lower this year than RPI due to the special clause so it doesn't need to be negative next year. Yet i still think overall it will stick with the -0.4%. As I say though, we will resource a campaign if it doesn't live up to it (and i will try and do it in my media outlets)
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I don't see it happening. In fact, the more I read the more I think that post-1998 are going to end up stuck with 1.5% for the whole of the coming year
Murphy's no more pies club member #194 - Weight loss to date = 2 stone 7 1/2 lbs Debt Free Wannabe 24/3/2008 - The budget starts today!!
I don't see it happening. In fact, the more I read the more I think that post-1998 are going to end up stuck with 1.5% for the whole of the coming year
Why is that?
There was a 'special clause' that brought it down to 1.5% - the interest can't be any more than 1% above the base rate. But now RPI has gone negative, surely the lower of the measures should now be taken?.
Last edited by stephen163; 21-04-2009 at 9:07 PM..
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There was a 'special clause' that brought it down to 1.5% - the interest can't be any more than 1% below the base rate. But now RPI has gone negative, surely the lower of the measures should now be taken?.
The article on the BBC website. I think they're going to say that as they lowered it to 1.5% in March, we're not paying the rate of inflation for the previous year and therefore in order to repay at market value they are keeping it at this rate for the coming year.
It's this line which bothers me: "Interest rates on loans taken out after 1998 are calculated in a different way, with greater flexibility in how they are worked out. "
Murphy's no more pies club member #194 - Weight loss to date = 2 stone 7 1/2 lbs Debt Free Wannabe 24/3/2008 - The budget starts today!!
The article on the BBC website. I think they're going to say that as they lowered it to 1.5% in March, we're not paying the rate of inflation for the previous year and therefore in order to repay at market value they are keeping it at this rate for the coming year.
But for new students, they haven't benefitted by lower rates til now, so should have a rate no higher than inflation.
But for new students, they haven't benefitted by lower rates til now, so should have a rate no higher than inflation.
By new students do you mean students who took out their loans in 2008? They won't have received or spent their loan until inflation had fallen - therefore they wouldn't be adversely affected because the cost of goods has gone down, and they'll be buying goods at today's prices.
Those who took out loans in 2007 have benefitted from the lower rate.
Don't get me wrong. I would like the SLC to stick to their T&Cs and reduce interest to -0.4%. I just think that they are going to worm their way out of it.
Murphy's no more pies club member #194 - Weight loss to date = 2 stone 7 1/2 lbs Debt Free Wannabe 24/3/2008 - The budget starts today!!
The article on the BBC website. I think they're going to say that as they lowered it to 1.5% in March, we're not paying the rate of inflation for the previous year and therefore in order to repay at market value they are keeping it at this rate for the coming year.
It's this line which bothers me: "Interest rates on loans taken out after 1998 are calculated in a different way, with greater flexibility in how they are worked out. "
I agree to an extent I think the only get out clause here is that for post-98 loans it will say "over the lifetime of the loan" it will match RPI and as its been lower this year than RPI it doesn't need to be negative next year. Yet i still think overall it will stick with the -0.4%
Martin Lewis, Money Saving Expert.
Please note, answers don't constitute financial advice, it is based on generalised journalistic research. Always ensure any decision is made with regards to your own individual circumstance.
Two classes of former Students in a country with rapidly falling wealth?
This suggestion is amazingly divisive.
As I remember it (because I have children aged 29 & 31), the fees started in 98. My son booked his Uni course in 97 and then did 3 months work in UK and went off on a round the world adventure.
My daughter did much the same two years later and faced much higher costs of going to Uni ("Dad can we say our relationship has irretrievably broken down - then I could count as a mature student")
I regard then both as fully matured adults now, who have had about 10 years of the "fat" years in which they could have saved for the inevitable "lean" years, while working on careers to pay good money for high valued added output.
This country has squandered the once in 5 million years opportunity of North Sea oil. It has done a near Iceland on the one knowledge industry where it seemed to have a historical advantage banking.
Where do we stand now: We face a rapid fall in the wealth, the real wealth, the GDP available to the citizens of this country.
Tell me what this economy has that gives it a national advantage? Compare it with er China, a country holding a chunk of this country's overdraft, with a 6 days a week workforce paid about 10% of our wage levels?
Today's Westminster "pantomime" should be all about how we distribute this reduction in living standards over the next 10 years.
In this internet age, the whole world will be watching the Chancellor's performance on U-Tube, including the "waxworks" in China.
Any suggestion, that this country is going to spend the next few years playing silly populist games, will persuade the people from whom we need to borrow, more than any time in peace time, to jack up our interest rates.
Being seen to give a bung to the gilded youth of the class of '97; gives a totally wrong message to this country and the world.
If we go down this the road to Argentina, the country, at best, will end up being governed by the IMF. like some sort of Banana republic.
Harry.
Mind you I am old enough to remember some people saying the country was never better run than under the IMF
I guess I'm one of the few still paying back a pre-98 loan (I actually had deffered entry on that year making me one of the last to receive it under this system). I then deffered repayment for 4 years whilst doing a PhD.
I'd love to see negative interest on my loan as at the moment it's costing me £185 a month in repayments, which is around 10% of my take-home salary (a 4 year london-based degree meant quite a substantial total amount borrowed). So is there any clause the government can use on pre-98 loans? Or is it just the post-98 ones they'll be able to wiggle their way out of?
Last edited by JP78; 22-04-2009 at 9:44 AM..
Reason: spelling
Thanks for the heads up Martin, I will watch with interest to see what happens about this and will fully back any campaign needed to see the -0.4%.....
M
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@JP78 - I'm also on a pre-98 loan as took a Gap Year 1997-1998 and deferred my university entry. Did a 5 year course so the loan is being repaid over 84 months... still got a way to go!!
Does anyone know what impact this will have on a pre-98 loan? I think they set next year's interest rate (i.e. Sept 2009 - Sept 2010) based on the RPI in March... but does this mean that I'll be paying no interest at all next year (i.e. I'll just be paying back the "repayment" part)? Or will the total amount I owe actually shrink a little?
I have quite a few loans under the old system. Unfortunately this year, because I earn £70 a year too much, I have to pay back over £150 a month. Not a good situation to be in But thems the rules!
I look forward to the SLC trying to wiggle out of that one or more hopefully seeing my loans actually reduce as I am paying them back most begrudgingly! I have managed to defer for this long, I just wish I had some loophole for the £70 to help my finances balance, seeing as none of us are getting that pay rise this year....
I agree to an extent I think the only get out clause here is that for post-98 loans it will say "over the lifetime of the loan" it will match RPI and as its been lower this year than RPI it doesn't need to be negative next year. Yet i still think overall it will stick with the -0.4%
I agree that this may be how they look at it.
In my view all that should come into it is how the student loans contract is worded. There is no interest rate collar, so for them to unilaterally invent one would be contrary to contract law.
As far as I know some banks have done exactly that on some below base rate tracker mortgages. They have argued that it's a commercial loan, so the interest can only ever go in one direction, and that this principle should override whatever's written in the contract. However, I believe they have not been legally challenged on this. Also, it says on the SLC website:
Quote:
Student loans are not like commercial loans. They are subsidised by Government and attract a low cost interest rate. This interest rate is based on the annual March Retail Price Index (RPI) or the highest base rate of a number of major banks plus 1%; whichever is lower.
Legally, unless they go for -0.4% I don't think they'd have a leg to stand on.
If the student loans company has wanted the interest rate to be 'collared' below at 0%, they should have stipulated this in the contract. They didn't. If there is any ambiguity over whether the contract intends for this to implicitly be the case, surely 'contra proferentem' would construe any such ambiguity against the party that drafted the contract.
Pls be nice to all MoneySavers. There's no such thing as a stupid question, and even if you disagree courtesy helps. Take care over copyright. Use excerpts and links rather than copying long text. This site asserts copyright on all comments posted on the board.
Pls be nice to all MoneySavers. There's no such thing as a stupid question, and even if you disagree courtesy helps.
Student Loan Interest Rate Discussion
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But thems the rules!
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