Student loans interest rate to fall due to BoE cut

Compound_2

There's some good news for students and graduates with outstanding loans. Although the previous Bank of England interest rate cuts haven't affected the RPI interest rate, a clause in the student loan terms prevents the rate being more than bank base rate plus 1%. The 4 December cut to 2% means that the 3.8% RPI will exceed the +1% limit. Therefore the daily interest rate must fall to give an APR of base rate plus 1%. Further BoE cuts should be passed on in full. Hopefully, the SLC will promptly update their systems to account for the unusual situation we are in, where BoE plus 1 exceeds RPI.

littlepinkstars44

does this apply in Scotland too?

Compound_2

littlepinkstars44 wrote: »

does this apply in Scotland too?

I believe so.

Lokolo

Is there a link for this? Would be awesome!

tehone

Sounds interesting - have you got a link to the T&C's that state this?

muddyfox470

Wow cheers for the info. I was going to post that the SLC loans aren't linked to base rates, but you see something new every day. Must have missed that. Cheers for the info

Compound_2

For those wanting references to check this out, the relevant clauses are as follows:

Teaching and Higher Education Act 1998, Section 22 (4)(a)(ii)
[The rates prescribed by regulations] ‘shall at no time exceed the specified rate for low interest loans’.

The Education (Student Support) Regulations, various editions
‘If the rate … exceeds the rate for the time being specified for the purposes of any exemption conferred by virtue of section 16(5)(b) of the Consumer Credit Act 1974 loans bear interest at the rate so specified.’

Loan agreements with APRs no more than bank base rate plus 1% are deemed low cost and exempt from the Consumer Credit Act. This cap was applied to student loans so they fell outside consumer credit legislation.

rb10

Thanks very much Compound for pointing that out - I had no idea, but that's great news

This is also mentioned on the NUS site at http://www.nus.org.uk/en/News/News/Student-loan-interest-rate-likely-to-drop/ . They say that it's based not just on the BOE rate, but also on the rates of HBOS, HSBC, LTSB & RBS, so probably won't drop by the full 1% ... but, any drop is a good drop!!

Compound_2

Up to 2004/05, the student loans ‘guide to terms and conditions’ included the following statement:

And, to protect the interests of borrowers, there is a limit to the rate of interest that you can be charged. This will be equal to the bank base rate plus 1%. As the bank base rate moves up and down this could mean that, in certain circumstances, the rate of interest charged on student loans could change during the year. If, for example the base rate plus 1% fell below the rate of interest being charged on student loans, the SLC would reduce the student loan rate to match it. Normally, however, the RPI is lower than the base rate plus 1%.

This was removed from later versions, although not because of any legislative changes. The wording ‘bank base rate’ is misleading, as there are many banks. Some banks, such as Barclays, still have base rates equal to the BoE rate, but this is not guaranteed. During this credit crunch we have seen LIBOR soar above the BoE rate. Perhaps students/graduates should join the pressure on banks, and urge them to cut their base rates. As the NUS article shows, one bank had a base rate of 3.6% when the BoE rate was 3%.

It is the highest base rate of the following banks that is relevant:
Bank of England, Bank of Scotland, Barclays, Clydesdale, Co-op, Coutts, Lloyds TSB, Midland (now HSBC), NatWest, RBS.
Source: Consumer Credit (Exempt Agreements) Order 1989 as amended by the Consumer Credit (Exempt Agreements) (Amendment) Order 1999.

melancholly

does that mean that they'll change it from now, or will this only apply when they set the rate for next year?

Lokolo

I've confirmed from someone who went talking to SLC (she works for LEA somewhere), and they are discussing what the rate will be and once decided it will be effective immediately.