Student Loan - Deflation?

richdeniro

If there is deflation next year and the RPI show negative figures, what happens to my student loan interest rate?

LilacPixie

I don't know but I would imagine the interest rate will then be fixed at zero.

poppy10_2

They will start to pay us money!

morg_monster

here on our very own MSE
http://www.moneysavingexpert.com/loans/student-loans-repay
Martin does say
"As a quirky point, if March ever experienced a month of deflation (negative inflation) student loan balances would actually be reduced month by month."

Of course I don't know if he's just assumed that, or whether he has actually asked. I reckon that if we had deflation, there's a reasonable chance that as another poster said, the interest rate would be "capped" at 0%. but you never know.
worth remembering that it is the march RPI that sets the rate for the year beginning the following september, so need to have deflation in that particular month. would be awesome if it happened, chances are it wouldn't last that long, but we'd be seeing money shaved off our loan or the amount staying the same for a whole year!

littlemissmoney

morg_monster wrote: »

here on our very own MSE
http://www.moneysavingexpert.com/loans/student-loans-repay
Martin does say
"As a quirky point, if March ever experienced a month of deflation (negative inflation) student loan balances would actually be reduced month by month."

Please can Martin or one of the MSE team confirm whether this is what they expect to happen or whether the student loan company have confirmed it? Thanks

rb10

'Student Loans: A Guide to Terms and Conditions', which are at:
http://www.direct.gov.uk/en/EducationAndLearning/UniversityAndHigherEducation/StudentFinance/DG_073080?IdcService=GET_FILE&dID=105044&Rendition=Web
say, under 'What interest will I pay on the loan?

...the Government has to keep the value of what is owed in line with the general rate of inflation. They do this by working out the rate of inflation each year as defined by the Retail Prices Index (RPI) and fixing the interest charged to that rate. The aim is to maintain the value, in real terms, of the amount of the loan you actually owe. This means that however long it takes you to repay your loan, you will repay no more, in real terms, than you actually borrowed.

The new interest rate [...] is based on the Retail Price Index for the previous March.

Doesn't say anything there about a minimum of 0 (or any other minimum).

What it does say, however, is that the interest is fixed to the value of the RPI. So I would assume that whatever the RPI is next March will be the rate for the student loan - even if it is negative.

However, as morg_monster says, it's only based on the one month, so it would be very lucky to happen!

rb10

Have just realised this is on the loans board (I followed a link from another post to get here for my post above). Wouldn't it be more appropriate on the student board?

Is anyone able to move it?

mojam55

Inflation figures out today show the RPI has dropped by a massive 2.1% in the month of December from 3% to 0.9%.
Obviously this was largly influenced by the reduction in VAT, reduced interest rates, rapidly falling petrol prices and discounting in shops in the run up to Christmas.

However I reckon there is a very real posibility now that RPI could fall closer to Zero or even below it by March.

BruceyBonus

mojam55 wrote: »

Inflation figures out today show the RPI has dropped by a massive 2.1% in the month of December from 3% to 0.9%.
Obviously this was largly influenced by the reduction in VAT, reduced interest rates, rapidly falling petrol prices and discounting in shops in the run up to Christmas.

However I reckon there is a very real posibility now that RPI could fall closer to Zero or even below it by March.

Hopefully it will stay low until March. Just goes to show how the system of setting the interest rate in March is wrong - it should be varied every month based on the previous month's RPI figure.

I did contact SLC to ask what would happen if the RPI was negative. I was told to contact the Press Office - they must have thought I was from the media.:rotfl:

CLAPTON

Just to say thet the rate of inflation is a comparison over a 12 month period and is not really a monthly figure.
Its just that each month they compare the index now with the index 12 months ago and express that as a percentage.

poppy10_2

mojam55 wrote: »

However I reckon there is a very real posibility now that RPI could fall closer to Zero or even below it by March.

RPI is predicted to fall to -4.3% by summer 2009.