Huge difference in interest rates - is this right?

ukstudent

I spent a year at university a few years ago and took out a loan. I've recently started another degree and taken out another loan. I just logged into the student loan repayment site today and noticed the massive difference between the interest rates of the loans. Why did they increase it so much?

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Ed-1

ukstudent wrote: »

I spent a year at university a few years ago and took out a loan. I've recently started another degree and taken out another loan. I just logged into the student loan repayment site today and noticed the massive difference between the interest rates of the loans. Why did they increase it so much?

s24.postimg.org / 9kajcyeit/studentloan.jpg

Since 2012, there are now 2 different repayment 'plans': 1 and 2. On repayment plan 1, the interest rate is the lower of March RPI or bank of England base rate + 1% so it is currently 1.5% as the base rate is 0.5%. On repayment plan 1, tuition fees were lower and repayments are taken as 9% of income above £16365. Any remaining plan 1 loan taken out for courses starting 2006-2011 is written off 25 years after entering repayment. Any remaining plan 1 loan taken out for courses starting 1998-2005 is written off at age 65 (tuition fees increased to £3k from £1k in 2006).

Repayment plan 2 is different and acts more like a graduate tax. Tuition fees are now much higher and so is the interest rate so those graduates that go on to earn very large sums of money make very large contributions towards their higher education. Repayments on this plan are taken as 9% of income above £21000 (so are lower compared to plan 1). That means it is more progressive than plan 1 which was a major argument for introducing this new system. Those that don't go on to earn high sums of money after graduating don't make substantial contributions towards the cost of their education. Any remaining plan 2 loan is written off 30 years after entering repayment.

They upped the interest rate as a lower interest rate on plan 2 would make the system more regressive. Everyone with plan 2 loans has RPI+3% interest applied until the April after graduating/leaving course. This was to try and dissuade people from taking low-interest loans just to profit from them when they didn't really need them. Then those earning less than £21000 from the April after leaving course have RPI applied while those earning above £41000 have RPI+3% applied. Those earning between £21000 and £41000 have interest between RPI and RPI+3% applied. This is supposed to ensure that those earning more pay more.

All of this of course assumes a future government doesn't change these terms.

It sounds as though you could be very unlucky here as you seem to have a plan 1 loan that wouldn't be that large, and a plan 2 loan, which means repayments would be taken above the lower plan 1 threshold of £16365 rather than the higher plan 2 threshold of £21000. When did you take out the plan 1 loan for your previous course and approximately how large is it?