Student Loan - Deflation?

discodavieuk

"Economists are predicting Retail Prices Index (RPI) inflation - key for private sector wage deals and pension payments - will have plunged from 0.1% in January to minus 0.7% in February"

Anyone know what will happen to the Student Loan interest rate? :beer:

poppy10_2

discodavieuk wrote: »

"Economists are predicting Retail Prices Index (RPI) inflation will have plunged from 0.1% in January to minus 0.7% in February"

It only 'plunged' from 0.1% to 0.0%. Shows how much economists know:rolleyes:.

waterwatcher

Sorry I'm a bit slow on the uptake, does this now mean our student loans will be zero percent for the next year thus actually paying off more as there is no interest????

BruceyBonus

waterwatcher wrote: »

Sorry I'm a bit slow on the uptake, does this now mean our student loans will be zero percent for the next year thus actually paying off more as there is no interest????

No - it is the RPI for this month (i.e. the figures they release in one month's time) that set the loan rate for the year.

waterwatcher

Oh, want it be convenient to find that the rate has gone up next month!!! hmmmm not that I'm sceptical about all of this or anything!!!! ha ha ha

richdeniro

Bit confusing.....

http://www.moneysavingexpert.com/loans/student-loans-repay

• Pre 1998 loans.
  
  If you started University between 1990 and 1997 the interest rate you pay depends on the rate of inflation every March (specifically the Retail Prices Index (RPI)) and is changed in September.
• Post 1998 loans.
  
  If you started University in 1998 or after the interest rate you pay depends on the rate of inflation during March (specifically the Retail Prices Index (RPI)) and is changed in September. Yet there's also an additional safety net; if the average base rates of 11 major UK banks plus 1% point is lower than March's RPI, this student loan rate will drop to that.
  
  Historically this was unlikely, yet it was first enacted on 5 December 2008 after a massive UK base rate plunge. Subsequent rate cuts on 8 Jan, 5 Feb and 5 Mar made it drop again, and it could still fall even further if there are more base rate reductions.

These rules are in place to maintain the loan's low cost status, although anomalies do occur if the March inflation rate is out of kilter. This happened when it was below average in 2006 at 2.4% and above average at 4.8% the following year. Yet over the full term of borrowing, for most people, this should even itself out.
Student loans can have NEGATIVE interest

Even if March's RPI turned negative (meaning we've experienced deflation), those with pre-1998 loans would see their outstanding balance SHRINK from the following September for an entire year. Sadly, for post-1998 loans, the jury's still out, as the Government won't confirm that the same rule applies.

richdeniro

Actually forget all that, found this on their website, the rate is 1.5%:

http://www.studentloanrepayment.co.uk/portal/page?_pageid=93,3866911&_dad=portal&_schema=PORTAL

Interest rate reduction for Income Contingent Loans

The new rate for income based student loans is 1.5% from 6 March until further notice. Interest is applied to loans from the date they are paid to you until they are repaid in full.
Why has it changed?

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.

To date, the RPI has always been the lower of the two. The reduced bank base rate plus 1% is now lower than the March 2008 RPI so have presently adjusted the student loan rate to 1.5%.

Who this will affect:

* Anyone who has a student loan for a course starting after September 1998 and has not paid the balance in full.
* Applicants for Maintenance Loans in the current and next academic year.
* Applicants for Tuition Fee Loans in the current and next academic year.

jd87

Hasn't it been all over the news today that inflation has actually increased this month? Is this bad news for all of us with student loans?

[EDIT} Just checked, CPI is up, but RPI is down to zero, and student loans are linked to RPI. Woohoo!

BruceyBonus

jd87 wrote: »

Hasn't it been all over the news today that inflation has actually increased this month? Is this bad news for all of us with student loans?

CPI has increased from 3.0 to 3.2%
RPI has decreased from 0.1 to 0.0%
RPI is what they use to calculate the student loan rate

onlyroz

Good news for me, because I started my course in October 1998. Have got around £12000 to repay...