When do Student Loans Co announce Interest Rate for 09/10 ?

argood

Numenor wrote: »

There weren't any Student Loans in 1990 though...

... although I realise that there's nothing to stop RPI going that high again in the future.

Yes there were, they were introduced in 1990.

The first loans were for academic year 1990/91 and the interest rate was 9.8%.

rb10

HangTime wrote: »

You do have to worry a bit about what SLC's forecasts must look like for next year - presumably repayments will be hit slightly due to rising unemployment and of course their balance sheet won't grow as fast as normal due to a lack of interest accruing on existing debts.

Good post, but I'm unsure about this bit.

I agree completely with repayments taking a dive with rising unemployment, and quite possibly less pay rises for those still in employment, all of which will reduce the amount received.

However, a low, or even negative, RPI for the next academic year will only reduce the interest that is accrued on loans during that time. Only for a very small minority of cases will this actually mean that the SLC is getting less money in, as the repayments are not based on the size of the loan or the amount of interest accruing. The interest rate has very little direct effect on the total amount (in £) of repayments made.

argood

HangTime wrote: »

Hehe, I can assure you I have no such assumption - I simply think that any institution, public sector or otherwise, will try to meet it's targets. Just because an organisation isn't profit making, it doesn't mean to say that they don't have budgets or targets - they've even formally outlined this in the form of KPIs.

Maybe my use of the word "sting" has been misinterpreted - I'm not complaining, I was just pre-empting the possible stance some people might take with regard to the 'fairness' of students being paid interest on their debts should the rate go negative. I'm in agreement with you - the interest rate should be what RPI was in the previous March, as defined. I was simply trying to illustrate that the rate varies based on external indicators, meaning that we should stick to it without complaint regardless of whether it is 'high' or 'low'.

In fact, I must admit that until it was recently publicised a couple of months back, I wasn't even aware of the clause relating to the range of bank rates +1% - I didn't utter any complaint about being charged 3.8% interest at a time when the base rate was lower, because I totally accepted it as part of the terms of my agreement (or what I believed them to be at the time!). In fact I think I even posted on this forum musing over whether I should repay my loan because it was becoming tricky to find a net savings rate much higher than 3.8%. That of course soon became a moot point once the base rate dropped even further and dragged down the student loan
rate with it.

Firstly, awesome response. It's so nice to debate things on the internet without it becoming a flame war.

I don't believe that there's targets for the amount of repayments that SLC receive back in, because how would that work? The repayments for post-1998 loans are deducted from wages dependant on how much you earn. SLC can't influence your wage, although that would be great.

I honestly can't see why the interest wouldn't go negative. It would mean reducing the oustanding balance by a couple of quid each month and if there's no profit to be made then there's (technically) no loss to be made either. Surely?

HangTime

I think their targets aren't so much "we will receive £x in repayments" but more along the lines of ensuring that they minimise the cost of factors which are under their control (ensuring timely payment/processing of payments, keeping to budget on internal projects etc). You can see a brief summary of them here: http://www.slc.co.uk/about%20us/performance/key_performance.html

To be fair having given it some thought I suspect the 'money pot' of student loans is ring fenced and essentially they are just the custodians - if they need to start paying out interest I guess this will come from that stream and not actually have any impact on their operation.

I guess the problem is that I have no idea how their contracts with the government are set up, and whether the government might react to having to pay out interest on loans by seeking to try and make savings by changing the way their administration arm (SLC) operates. I suppose ultimately it is very unlikely that any money actually needs to be 'paid' anyway, as in the majority of cases it would just be changing balances. The only people who might end up getting owed money (due to the timelag in processing) are those who clear their loan in that fiscal reporting period, and the chances are if that happens their balances will be very low making the interest payments very small also.

argood

HangTime wrote: »

I guess the problem is that I have no idea how their contracts with the government are set up, and whether the government might react to having to pay out interest on loans by seeking to try and make savings by changing the way their administration arm (SLC) operates. I suppose ultimately it is very unlikely that any money actually needs to be 'paid' anyway, as in the majority of cases it would just be changing balances. The only people who might end up getting owed money (due to the timelag in processing) are those who clear their loan in that fiscal reporting period, and the chances are if that happens their balances will be very low making the interest payments very small also.

Well exactly, as you say the numbers who will actually receive a payout are pretty small, and it's not as if credit interest is unheard of at SLC. If you over-repay your loan then the credit amount gains interest which is then repaid to you when you receive your refund.

March is going to be an interesting month.

Numenor

argood wrote: »

Yes there were, they were introduced in 1990.

The first loans were for academic year 1990/91 and the interest rate was 9.8%.

Oh, right. They must have operated slightly differently to subsequent years then, because my loans were 1996-1998 and iirc the terms stated that no interest would be accrued until my course was finished. Of course now I'm doubting myself...

priya1111

Hi, I have been reading through this thread trying desperatly to make sense of it!
I am a student and will be going to uni and taking out a student loan for September 2009... I am so confused, could anyone explain to me if possible? I would be so grateful!
Is a high or low interest rate good for us students paying back a loan? Is the interest what we pay on top of the loan for taking it out? So in that case a low interest rate would be good?
Also do you sepculate tat we will have a high or low interest rate due to the recession?

Sol00

Hi Priya

The interest on student loans is always lower than commercial banks, therefore, it's always better to get this than a bank loan.

Currently, due to the base rate being reduced, the interest rate is at 2% and there is a possibility it culd be lowered again.

priya1111

Sol00 wrote: »

Hi Priya

The interest on student loans is always lower than commercial banks, therefore, it's always better to get this than a bank loan.

Currently, due to the base rate being reduced, the interest rate is at 2% and there is a possibility it culd be lowered again.

Hi
Thanks for your reply!
So it is good for us students to have a lower interest rate as we would pay back less on top of our loan? Am i correct? Sorry, this is all new to me!
Also can the rates change through our student loan? or do we only take the interest rate at the beginning of the year and stick with that?

rb10

priya1111 wrote: »

Hi
Thanks for your reply!
So it is good for us students to have a lower interest rate as we would pay back less on top of our loan? Am i correct? Sorry, this is all new to me!
Also can the rates change through our student loan? or do we only take the interest rate at the beginning of the year and stick with that?

Yes, we want the interest rate to be as small as possible, as a lower rate means that less interest is being added to the loan. Hence, the amount to be repayed is lower.

Generally, the rates would stay fixed for the academic year (i.e. 1st September - 31st August), and would be at the level of RPI (inflation measure) for March of the previous year. However, they are not allowed to be more than 1% above the base rates of the Bank of England, and a selection of the other major banks, so this year the rate has actually decreased throughout the year (because the base rates have gone down a lot). It started at 3.8% in September, and has gradually reduced to 2% now.

Next year (i.e. from 1st September 2009), it is likely that we will have a very low rate fixed for the whole academic year, as inflation for March 2009 is likely to be tiny.