MSE News: End to interest-free student loans as 1.5% rate revealed

Former_MSE_Guy

This is the discussion thread for the following MSE News Story:

"Millions of student loan holders will no longer pay zero interest from next month as the rate for the new academic year will start at 1.5% for most, it was announced today ..."

Read the full story:
End to interest-free student loans as 1.5% rate revealed

JimmyTheWig

Can't quite get my head around these figures and rules. Been some time since I was personally involved.
Is the article saying that the government are following the rules correctly here?

Either way, I think this question should be unambiguously answered in the article as it's not clear.

LittleEarner_2

I'm pretty financially savvy, but I found this article really difficult to understand. Even reading it 3 times, I'm not sure I fully understand it!

Dan

farso

What is hard to understand?

The current loan interest rate is 0%
Next week it will be 1.5%

The government argue that it will not cost us any interest in "real terms"

All we can hope is that someone good at law can prove the loan terms changed without agreement and we wont have to pay them back. Maybe thats a bit of a dream, but one can always hope!

N1AK

I found it pretty straight forwards, although I am a student loan payer so I know the background. At the moment I'm paying no interest, this will be changing to 1.5%.

I, like Farso, am still angered by the government's decision to change the terms of the loan for the last year. They added 0.4% interest onto what I should have paid. That has added ~£400 onto the loan this year, and if I pay it off over the next 20 years will cost me another £200 (at 2.5% avg rate) in interest.

If a bank had done to mortgages what the government did to student loans the government / courts would of come down on them like a tonne of bricks.

kolin_2

N1AK wrote: »

If a bank had done to mortgages what the government did to student loans the government / courts would of come down on them like a tonne of bricks.

unfortunately, thats unlikely as the banks own the government.

kolin_2

so someone explain how this impacts me.
I've got a £14,000 student loan outstanding. accrued between the years 98/99 and 02/03.
Last year i paid off £800 total of the balance.

how much of the balance will paying £800 clear next year?

farso

kolin wrote: »

how much of the balance will paying £800 clear next year?

Paying £800 will take £800 off the balance, although the balance will increase by 1.5%

dtaylor84

The article seems a bit sensationalist (as seems to be the norm for MSE these days). It has been clear since the March 2010 RPI figures were released that the current 0% rate would come to an end now.

It has always looked likely to back on the 1%-above-base-rate limit they were at last year. And there they will remain, until the base rate changes (unless March 2011's RPI figures are lower than 1.5% - which seems unlikely).

Thanks, MSE, for giving me an unnecessary heart attack.

The_One_Who

I too thought the article was written in a rather sensationalist manner. This should not be a shock to anyone, in fact, this is the best outcome for people. Or would we rather they went with the RPI figure of 4.4% for everyone?

N1AK

kolin wrote: »

so someone explain how this impacts me.
I've got a £14,000 student loan outstanding. accrued between the years 98/99 and 02/03.
Last year i paid off £800 total of the balance.

how much of the balance will paying £800 clear next year?

£14,000 of loan will generate ~£210 interest during the year. If you pay off another £800 then your loan will decrease by ~£590. Slow progress isn't it! I'd advise leaving it be, letting them take the minimum from your pay packet and invest anything you can in savings which beat the interest rate on the loan anyway.