Student Loan Interest Rate Discussion

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  • JayScottGreenspan
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    Shockingly, NUS are backing the government on this one! Read the article and raise your concerns here:

    http://www.nus.org.uk/en/News/News/Student-Loan-interest-rate-dropped-to-0/
    NUS President Wes Streeting said:
    “In the context of a recession, this is the best deal students and graduates could have expected. NUS will continue to monitor the rate of interest on student loans, and make sure the government is aware of students’ concerns."

    Bizarre. For post-98 loans this was the worst deal students and graduates could have expected. I wonder if this chap's loyalties lie more with the Labour Party than with students?
  • mtudor_2
    mtudor_2 Posts: 11 Forumite
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    Important discussion this one - agreed that the main worry is the precedent that this sets for the future, rather than the immediate £40 loss.

    I started a Facebook group (before I realized someone had already done so) when the news first came out. It was initially intended to be a way to spread the news to immediate friends, but it's grown reasonably fast so I thought I'd make others aware...

    www facebook.com/group.php?gid=106241830624&ref=mf

    2,300+ members at current. We're currently recommending members write to their MPs on the suggestion of one of the group members.

    We also came across this article (www lovemoney.com/news/loans/student-loans-to-cost-more-than-inflation-3389.aspx) which seems to identify a new clause in the student loans document for 2009. I'm not versed in law myself, so I'm not sure how valid the argument is but thought I'd share.

    Mark.
  • surfsister
    surfsister Posts: 7,527 Forumite
    I've been Money Tipped!
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  • surfsister
    surfsister Posts: 7,527 Forumite
    I've been Money Tipped!
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    13,810 now
  • crumpsall
    crumpsall Posts: 13 Forumite
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    Surely the determinant of the interest rate must be the contract which exists between the student and the SLC?


    The basis of the contract for my younger son was his application (of which I have a copy) for a loan commencing in October 2006. The application declaration which he was required to sign makes no mention of interest payments, but paragraph (b) states " I have read and understood the booklet 'Student Loans: A Guide to terms and conditions"'. That booklet says on page 10 under the heading Interest:-

    "Although student loans are contracts which can be enforced by the civil courts, they are not profitmaking loans. The Government subsidises the actual cost of interest on the loans, so they do not attract the same rates of interest that you would be charged if you were to take out a loan from a bank or building society. However, to make sure that all borrowers pay back the same amount that they borrowed, the Government has to keep the value of what is owed in line with the general rate of inflation. This is done by working out the rate of inflation each year as defined by the Retail Prices Index (RPI) and fixing the interest charged to that rate. The aim is to maintain the value, in real terms, of the outstanding amount of the loan. This means that however long it takes you to repay your loan, you will repay no more, in real terms, than you actually borrowed."

    I have taken the liberty of emboldening the most relevant parts of the text.

    The Declaration that my son signed does refer to the Teaching and Higher Education Act 1998. In Section 22, this appears to give the Secretary of State carte blanche to set any level of repayment - see paras-

    3(a) for such loans to bear compound interest at such rates, and calculated in such manner, as may be prescribed from time to time;
    4 In relation to loans under this section—

    (a) the rates prescribed by regulations made in pursuance of subsection (3)(a)—
    (i) shall be no higher than those which the Secretary of State is satisfied are required to maintain the value in real terms of the outstanding amounts of such loans, and
    (ii) shall at no time exceed the specified rate for low interest loans;

    It was this latter clause that caught the Government out and led to the reduction to 1.5% earlier this year. Whether the other clauses give the right to refuse to apply negative rates must be open to challenge, given that the intention to which the borrower signed up was to maintain the value and for the SLC not to make a profit. I personally do not think that it is reasonable for the Government to have expected every applicant to have read and understood the Act - a Court of Law would surely use the Guide as the relevant document in terms of fairness and expectation?

    With a normal disputed contract, I would pay the undisputed part whilst the disputed part was being resolved, but given that HMRC extract money directly from salary, I don't see how this can be done. - any ideas?

    I have written to my MP and the major opposition candidates in my constituency. Also to David Lammy (Minister Uni's), shadow ministers David Willetts and Stephen Williams. Also John Denham (Secr of State for Education - well 'til yesterday anyway!).

    Responses after a fortnight?:-
    1) Local (Lab) MP – acknowledgement saying that she has referred it to Lammy.
    2) Cons Challenger to local MP – note saying that he understands the Government’s position but that they do appear to have broken the terms of the contract.
    3) Henry Cook (on behalf of Willetts) – note pointing out that they have raise the matter in the House and that there has been unacceptable delay in announcing the rate for next year. Have written back asking for commitment that a Conservative Government would apply the negative interest rate – so far – silence!
    4) Acknowledgement from Lammy’s Department saying that they will respond by 6th July.


    I suspect that nothing will happen without a legal challenge and am surprised and disappointed that the NUS hasn't seen fit to mount one
  • ler01kjh
    ler01kjh Posts: 164 Forumite
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    surfsister wrote: »
    13,810 now

    Shouldn't the end date of the petition be changed? As the interest rate is to be applied in September, it occurs to me that May 2010 is too late for it to close.
  • ler01kjh
    ler01kjh Posts: 164 Forumite
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    crumpsall wrote: »
    Surely the determinant of the interest rate must be the contract which exists between the student and the SLC?


    The basis of the contract for my younger son was his application (of which I have a copy) for a loan commencing in October 2006. The application declaration which he was required to sign makes no mention of interest payments, but paragraph (b) states " I have read and understood the booklet 'Student Loans: A Guide to terms and conditions"'. That booklet says on page 10 under the heading Interest:-

    "Although student loans are contracts which can be enforced by the civil courts, they are not profitmaking loans. The Government subsidises the actual cost of interest on the loans, so they do not attract the same rates of interest that you would be charged if you were to take out a loan from a bank or building society. However, to make sure that all borrowers pay back the same amount that they borrowed, the Government has to keep the value of what is owed in line with the general rate of inflation. This is done by working out the rate of inflation each year as defined by the Retail Prices Index (RPI) and fixing the interest charged to that rate. The aim is to maintain the value, in real terms, of the outstanding amount of the loan. This means that however long it takes you to repay your loan, you will repay no more, in real terms, than you actually borrowed."


    This is great - I haven't a clue where my terms might be from 1998.

    It strikes me that a test case is needed to challenge the Secretary of State for his decision. Perhaps this is the resource this site is considering??? :money:

    I too have written to my MP (no response yet, too busy worrying about their expenses presumably), and also the petition. Would encourage all to do the same and tell others.
  • crumpsall
    crumpsall Posts: 13 Forumite
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    I have today, via my MP, received a letter from David Lammy, Minister with responsibility for Universities. In it he says:-

    [FONT=&quot]“I note Mr Xxxxx has concerns about how interest rates are calculated on outstanding student loans. Student loans are subsidised by Government and attract a low cost interest rate, compared to commercial loans. As Mr Xxxxx already knows, the interest rate is generally 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. However, the Secretary of State has the power (under section 22(3) of the Teaching and Higher Education Act 1998) to decide not to set a rate. The corresponding regulation is 21(6) of The Education (Student Loans) (Repayment) Regulations 2009 (SI 470) which is available to view at: www opsi.gov.uk/si/si2009_20090470_en_1[/FONT] [FONT=&quot]

    Whilst to date the RPI has set the student loan interest rate for the following academic year (1 September - 31 August), the law allows Government not to set an interest rate: effectively making the rate 0%. The Student Loans Company (SLC) will apply 0% interest rate from 1 September 2009 to 31 August 2010 across the UK.[/FONT]


    The repayment threshold will also remain at £15,000 for the next 12 months. Had the Government used a negative RPI rate to calculate this, the threshold would have also reduced and borrowers would have started repaying earlier and ended up paying more. Monthly repayments of student loans are made at a rate of 9% on income above this threshold. Setting the interest rate at 0% has no impact on the monthly repayment of those graduates already in repayment.”

    I think that this is totally unacceptable – parts are simply incorrect, and I believe that it is written with the intention to deliberately mislead. I have responded via my MP:-

    “Thank you for forwarding David Lammy’s letter to you in response to my e-mail. I have to say that I find it less than helpful – in fact, positively and deliberately misleading:-

    Firstly, he says that “had the Government used a negative RPI” (to adjust the repayment threshold), “borrowers would have started repaying earlier and ended up paying more”. Whilst the first half may be true, the second is not. As the interest is calculated on a compound basis, the loan would be paid off sooner and hence the overall cost would NOT be greater.
    The fact of the matter is that, again because the interest is compounded, the effects of the additional 0.4% interest for the coming year will be added to the interest burden for every year until the loan is fully repaid, adding to the overall cost – so on this, he is just plain wrong.

    Secondly, the implication of the above statement is that the repayment threshold varies from year to year with RPI. It does not. It has been fixed at £15,000 pa since 2004/5. There is an unequivocal statement to this effect in the Student Loans Guide Terms and Conditions booklet 2006/2007. There is no caveat suggesting that there are circumstances under which this threshold could or will be varied.

    Equally, Mr Lammy is being disingenuous in saying that “Setting the interest rate at 0% has no impact on the monthly repayment of those graduates already in repayment” – true in itself, but grossly misleading as those graduates already in repayment will be indebted for a longer period of time and end up paying more overall.

    He refers to the 2009 (SI 470) regulations to justify not setting a rate for the coming year. I hardly need point out that these were issued some two and a half years after my son contracted his loan on the basis of Terms and Conditions in the Student Loans Guide and which promised a direct link to the March RPI. Whilst the wording of the contract does refer to the Act “as amended from time to time” , I really do find it difficult to believe that a Court would find this to be a fair contract condition, given that it is aimed at 18 year olds of average intelligence (by definition, as the Government’s aim is for 50% entry into University) with no legal training and who may or may not have Internet access to access all the documentation.

    I note that Mr Lammy also refers to the Teaching and Higher Education Act 1998, section 22 (3) for his justification. I assume that he is referring to clause (a) which says -
    “for such loans to bear compound interest at such rates, and calculated in such manner, as may be prescribed from time to time”
    I think that most reasonable people would read this to mean that the basis of the interest rate calculation can be changed for new loans without the need for a new Act of Parliament, but I cannot find any reference in the 1998 Act to suggest that the basis for interest rate calculation can be changed for existing loans once they are in force.

    I would also point out that in section 4 (a) (i) of this 1998 Act, the Secretary of State is put under an obligation to ensure that the rates
    “shall be no higher than those ………. required to maintain the value in real terms of the outstanding amounts of such loans”.
    Quite evidently the real value (i.e. cost to the student) of the loans is being increased by his refusal to set a rate commensurate with the fall in RPI. He has therefore failed to meet that legal obligation.

    I am very disappointed with his response which seems determined to obfuscate the issue. At the end of the day, a contract was agreed on the basis that any student would only have to “pay back the same amount that they borrowed” after adjustment for RPI (p. 10 of Student Loans Guide). The imposition of any additional interest is at best a breach of the promise made by the Government – in my view, it is a legally unenforceable unilateral change of contract terms.

    I would be grateful if you would take up the matter again with Mr Lammy. With the benefit of his legal training, I would hope for a better reasoned and more cogent response which actually addresses the issue in terms of the undertakings given by Government (both in publications and in speeches) and the “fairness” of the terms to which students are required to sign in order to have access to the loan facility.”

    If I get a better response, I will post it. Meanwhile, does anyone have a legal view about challenging the decision on the basis that, whilst allowed for under the Act, it should be considered unreasonable to expect a schoolchild to understand that they are effectively signing a document which allows the Government to do whatever they like on a Minister’s whim?
  • crumpsall
    crumpsall Posts: 13 Forumite
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    Lammy has again replied and again fails to address the issue of the Government breaking its contract. I am constructing a further reply which will be posted in due course. Meanwhile, here is his letter - any comments would be welcome.

    Letter from Lammy to my MP:-

    "Thank you for your letter of 6 July, enclosing further correspondence from Mr XXXXX, about the interest payable on student loans.

    I have noted Mr XXXX's further comments and should perhaps firstly clarify that during the passage of the Higher Education 2004 Bill, Parliament agreed that the income threshold for the repayment of Income Contingent loans would be increased to £15,000, from 2006, and remain at that level until April 2010, when it would be reviewed. That review took place at the same time that we had to consider the interest rate on student loans and we took a consistent approach. We confirmed that we would not amend the income threshold in April 2010, as using the Retail Prices Index would lower the threshold, so bringing more people into repayment as well as increasing repayments for those already in the repayment channel. We will carry out a further review of the threshold for April 2011 in future months.

    As Mr XXXX already knows, repayments are linked directly to earnings. This ensures they are affordable for all graduates, regardless of the amount owed. The income threshold protects borrowers when they need it - they make no payment if their income falls below it. I should add that borrowers enter into an agreement based on the terms and conditions of their income contingent student loan contract. The declaration by the student requesting a loan says that the borrower has read and understood the guidance booklet and that they agree that any loans made to them will be under the terms set out in the Loan Request Form, and within Regulations which are made under Section 22 of the Teaching and Higher Education Act 1998, as amended from time to time. The Education (Student Loans) (Repayment) Regulations 2009 also form part of the terms and conditions of the contract. Section 22 of the Teaching and Higher Education Act 1998 gives the Secretary of State the power to make Regulations relating to the repayment of student loans. It also states that the Secretary of State may make provision for loans to bear compound interest at such rates, and calculated in such manner, as may be prescribed from time to time. The Education (Student Loan) (Repayment) Regulations 2009 were made under this power and set out the detail in relation to student loan interest rates, including provisions relating to not applying a rate of interest. These were consolidating Regulations.

    Section 22 (4)(a)(i) refers to maintaining the loan in real terms where a rate is prescribed in Regulations. We have done exactly that in 2008/09, when we set a rate of 3.8% at the beginning of the academic year. However, in 2009/10 the Secretary of State has decided not to apply a rate of interest.

    What we should not forget is that student loans remain more generous than commercial loans and are subsidised by the taxpayer. They are not, in any sense, profit making. The decision not to set an interest rate does not alter that."


    The man is clearly stonewalling. I know that the Loan is not governed by the Consumer Credit Act. Anyone know in what legal forum it can be challenged?



    crumpsall wrote: »
    I have today, via my MP, received a letter from David Lammy, Minister with responsibility for Universities. In it he says:-

    [FONT=&quot]“I note Mr Xxxxx has concerns about how interest rates are calculated on outstanding student loans. Student loans are subsidised by Government and attract a low cost interest rate, compared to commercial loans. As Mr Xxxxx already knows, the interest rate is generally 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. However, the Secretary of State has the power (under section 22(3) of the Teaching and Higher Education Act 1998) to decide not to set a rate. The corresponding regulation is 21(6) of The Education (Student Loans) (Repayment) Regulations 2009 (SI 470) which is available to view at: www opsi.gov.uk/si/si2009_20090470_en_1[/FONT] [FONT=&quot]

    Whilst to date the RPI has set the student loan interest rate for the following academic year (1 September - 31 August), the law allows Government not to set an interest rate: effectively making the rate 0%. The Student Loans Company (SLC) will apply 0% interest rate from 1 September 2009 to 31 August 2010 across the UK.[/FONT]


    The repayment threshold will also remain at £15,000 for the next 12 months. Had the Government used a negative RPI rate to calculate this, the threshold would have also reduced and borrowers would have started repaying earlier and ended up paying more. Monthly repayments of student loans are made at a rate of 9% on income above this threshold. Setting the interest rate at 0% has no impact on the monthly repayment of those graduates already in repayment.”

    I think that this is totally unacceptable – parts are simply incorrect, and I believe that it is written with the intention to deliberately mislead. I have responded via my MP:-

    “Thank you for forwarding David Lammy’s letter to you in response to my e-mail. I have to say that I find it less than helpful – in fact, positively and deliberately misleading:-

    Firstly, he says that “had the Government used a negative RPI” (to adjust the repayment threshold), “borrowers would have started repaying earlier and ended up paying more”. Whilst the first half may be true, the second is not. As the interest is calculated on a compound basis, the loan would be paid off sooner and hence the overall cost would NOT be greater.
    The fact of the matter is that, again because the interest is compounded, the effects of the additional 0.4% interest for the coming year will be added to the interest burden for every year until the loan is fully repaid, adding to the overall cost – so on this, he is just plain wrong.

    Secondly, the implication of the above statement is that the repayment threshold varies from year to year with RPI. It does not. It has been fixed at £15,000 pa since 2004/5. There is an unequivocal statement to this effect in the Student Loans Guide Terms and Conditions booklet 2006/2007. There is no caveat suggesting that there are circumstances under which this threshold could or will be varied.

    Equally, Mr Lammy is being disingenuous in saying that “Setting the interest rate at 0% has no impact on the monthly repayment of those graduates already in repayment” – true in itself, but grossly misleading as those graduates already in repayment will be indebted for a longer period of time and end up paying more overall.

    He refers to the 2009 (SI 470) regulations to justify not setting a rate for the coming year. I hardly need point out that these were issued some two and a half years after my son contracted his loan on the basis of Terms and Conditions in the Student Loans Guide and which promised a direct link to the March RPI. Whilst the wording of the contract does refer to the Act “as amended from time to time” , I really do find it difficult to believe that a Court would find this to be a fair contract condition, given that it is aimed at 18 year olds of average intelligence (by definition, as the Government’s aim is for 50% entry into University) with no legal training and who may or may not have Internet access to access all the documentation.

    I note that Mr Lammy also refers to the Teaching and Higher Education Act 1998, section 22 (3) for his justification. I assume that he is referring to clause (a) which says -
    “for such loans to bear compound interest at such rates, and calculated in such manner, as may be prescribed from time to time”
    I think that most reasonable people would read this to mean that the basis of the interest rate calculation can be changed for new loans without the need for a new Act of Parliament, but I cannot find any reference in the 1998 Act to suggest that the basis for interest rate calculation can be changed for existing loans once they are in force.

    I would also point out that in section 4 (a) (i) of this 1998 Act, the Secretary of State is put under an obligation to ensure that the rates
    “shall be no higher than those ………. required to maintain the value in real terms of the outstanding amounts of such loans”.
    Quite evidently the real value (i.e. cost to the student) of the loans is being increased by his refusal to set a rate commensurate with the fall in RPI. He has therefore failed to meet that legal obligation.

    I am very disappointed with his response which seems determined to obfuscate the issue. At the end of the day, a contract was agreed on the basis that any student would only have to “pay back the same amount that they borrowed” after adjustment for RPI (p. 10 of Student Loans Guide). The imposition of any additional interest is at best a breach of the promise made by the Government – in my view, it is a legally unenforceable unilateral change of contract terms.

    I would be grateful if you would take up the matter again with Mr Lammy. With the benefit of his legal training, I would hope for a better reasoned and more cogent response which actually addresses the issue in terms of the undertakings given by Government (both in publications and in speeches) and the “fairness” of the terms to which students are required to sign in order to have access to the loan facility.”

    If I get a better response, I will post it. Meanwhile, does anyone have a legal view about challenging the decision on the basis that, whilst allowed for under the Act, it should be considered unreasonable to expect a schoolchild to understand that they are effectively signing a document which allows the Government to do whatever they like on a Minister’s whim?
  • student_advisor
    student_advisor Posts: 538 Forumite
    edited 9 August 2009 at 10:04PM
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    crumpsall wrote: »
    I have noted Mr XXXX's further comments and should perhaps firstly clarify that during the passage of the Higher Education 2004 Bill, Parliament agreed that the income threshold for the repayment of Income Contingent loans would be increased to £15,000, from 2006, and remain at that level until April 2010, when it would be reviewed. That review took place at the same time that we had to consider the interest rate on student loans and we took a consistent approach. We confirmed that we would not amend the income threshold in April 2010, as using the Retail Prices Index would lower the threshold, so bringing more people into repayment as well as increasing repayments for those already in the repayment channel. We will carry out a further review of the threshold for April 2011 in future months.

    I do not remember the RPI being 50% when the repayment threshold was increased from £10k to £15k. If RPI wasn't used then, why is it being used now? How is this argument in any way relevant to the complaint? It appears to me that this is being used as justification for the 0% interest rate without any basis.
    crumpsall wrote: »
    The declaration by the student requesting a loan says that the borrower has read and understood the guidance booklet and that they agree that any loans made to them will be under the terms set out in the Loan Request Form, and within Regulations which are made under Section 22 of the Teaching and Higher Education Act 1998, as amended from time to time.
    Which I'm sure they've read every line of and understand every word.
    crumpsall wrote: »
    What we should not forget is that student loans remain more generous than commercial loans and are subsidised by the taxpayer. They are not, in any sense, profit making. The decision not to set an interest rate does not alter that."
    I'm sorry, but somebody, somewhere is making a profit out of me (and all the others with these loans) to the tune of £4 for every £1000 I owe (about £80 for the year). That's going to add up to a tidy little sum for somebody. This will be further compounded if we still have negative RPI next year.
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