Inflation based student loan

hstudent

Student Loans taken out after 1998 have an interest rate set in September which is equal to the RPI. However, the student loan rate cannot be more than 1% above the Bank of England base rate. Hence, some recent mid year changes in the student loan rate.

However, the current RPI is 0.1%, so what would happen if it dropped 1%? As Student Loans are advertised as "You pay back roughly what you borrow as only inflation is added" would this mean they would have to reduce your student loan to be in line with inflation?

Sol00

It's not currently based on the RPI as the base rate is so low, it is 1% above this. Due to the interest cut, it should be down to 1.5% from today.

atypical

Interest rates on student loans are 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. Thus whether we get an interest rate of 1.5% or not depends on how much of the recent 0.5% cut is passed on by the banks. Most seem to expect that the banks won't pass on the full 0.5% but it will almost definitely go down.

On another note, the FSA referring to mortgage deals which now have negative interest rates:
"the FSA has analysed several contracts and has concluded, in general, that paying interest is a one-way obligation on the borrower"

Wonder if the same applies to student loans.

hstudent

atypical wrote: »

On another note, the FSA referring to mortgage deals which now have negative interest rates:
"the FSA has analysed several contracts and has concluded, in general, that paying interest is a one-way obligation on the borrower"

Wonder if the same applies to student loans.

Most banks would probably have a clause in the mortage deal to have a lowest possible amount e.g. 0%. But if they did with Students Loans wouldn't it be false advertising?

Fire_Fox

Been discussed soooooooooooooooo many times.

Lokolo

I doubt SL rate will go down, I don't think HSBC are following.