how will lower interest rated affect student loans?

surfsister

Hiya how do you think lower interest rates will affect student loans next yera ie sep 09? Will the interest rates drop? Any idea?

Oldernotwiser

surfsister wrote: »

Hiya how do you think lower interest rates will affect student loans next yera ie sep 09? Will the interest rates drop? Any idea?

The interest rate on student loans isn't connected to general interest rates but to the rate of inflation. I believe that this was quite high on the appropriate date this year.

Rikki

Oldernotwiser wrote: »

The interest rate on student loans isn't connected to general interest rates but to the rate of inflation. I believe that this was quite high on the appropriate date this year.

I've just spent some wasted air trying to explain this to some of my sons student friends . :rolleyes:

Lokolo

Oldernotwiser wrote: »

The interest rate on student loans isn't connected to general interest rates but to the rate of inflation. I believe that this was quite high on the appropriate date this year.

Technically lowering interest rates means higher inflation which means higher student loans. But obviously it doesn't always mean it works!

Rikki wrote:

I've just spent some wasted air trying to explain this to some of my sons student friends . :rolleyes:

All of my housemates raged the other week because they found out they were paying interest on the loan! ha

Mike1989

They didn't realise there was interest on the student loan?

I thought it was bad enough that I thought the applications rolled over every year you are at uni, and only stop when you graduate or inform them that you have left. But heck even I knew that there was interest on the student loan...blimey.

But in reality I suppose we all knew what we were taking out, well most of us, and it is an investment and hopefully it will pay off for us all.

morg_monster

The rate for each year is determined by the inflation (RPI) figure in March. This rate is then applied to the loans from September of that year to the following september. So currently, we are paying 3.8%, and will do until September 09, because that was what RPI was in March 2008. This is a whole 1% lower than it was the year before, when the March RPI just happened to be high in March 2007.
As you might be aware although inflation hit a massive high last month (5.2%), today we found out it is already down to 4.5%, and everyone expects it to fall much, much further. So by march, it should be at worst around the same rate as we are paying now, and more likely even lower.

Some experts are worried that RPI could go negative ... in theory if it was negative in March then our student loan rate from september should also be negative and hence the amount outstanding would reduce every month! Unlikely to happen by March 2009 but maybe 2010...

NB: the RPI is not the same as the bank of england interest rate, which is what was cut hugely this month from 4.5% to 3%. They are obviously associated in a big complex economic type way, but not directly linked or anything. RPI is what you need to keep an eye on!