Student Loan interest rate?

samhan

Hi guys,

I know the current interest rate on the student loan is 2.4 until 31 August 2007, but I was wondering if the next interest rate has been announced yet.

I think the interest rate is the RPI rate in march but I'm not too sure about this. If it is then the interest rate is going to go up to 4.8% which is quite high as the current top saving account (ICICI) gives around 6.05% (base rate 4.72%).

Can anyone clarify this for me?

Thanks
Sam

CLAPTON

It has always been the March RPI rate.

There is no specific reason to think it will be different this year but I haven't seen it announced yet.

samhan

Thanks for the reply clapton,

this would make the rate 4.8%, would this make more people think about just paying off their student loan as saving the money would not be worth it.

What are your opinions on this?

Broke_Student

samhan wrote: »

Thanks for the reply clapton,
What are your opinions on this?

Don't pay it off early.
I believe other interest rates also tend to follow the RPI. The base rate will eventually increase and this will knock onto the interest earned on savings. Mortgage rates will also become more expensive. Student loans will always be one of the cheapest loans available so it is better to put the loan money into your mortgage.
So even if you are loosing a couple of pounds in the short term, I would not pay off early. Either the interest on student loans will drop back in another year or all other interest rates will self adjust accordingly, making the loan the excellent value it previously was.

Compound_2

The other thing to remember is that student loans have an expiry date after which you don't have to pay. With rising student debt and a falling graduate premium, many graduates won't finish paying their loans. For example, a graduate earning £25 000 (not bad!) would pay only £900 a year. But a £15 000 debt @ 4.8% interest will go up £720. This means you are repaying the principal at only £180 a year. It would take over 80 years to repay everything, but the loan expires after 25 years or at age 65. To pay it off now when you might not have to in future is effectively giving your money away to the Government.

Faz

The student loan rate WILL be going up to 4.8% this year.

seven-day-weekend

Does the student loan accrue interest while the graduate is not earning enough to repay it? (i.e., does the debt keep growing)?

Lavendyr

Yes, it accrues interest from the day you borrow it.

b33r

seven-day-weekend wrote: »

Does the student loan accrue interest while the graduate is not earning enough to repay it? (i.e., does the debt keep growing)?

Yep I have been getting a statement every year since I finished first year, think it was about 20 odd quid a month then, ive just finished degree (4 years) and its up around 100 odd a month now and im not earning a penny yet.

seven-day-weekend

`Oh dear, so the lowest earning will be hardest hit if they ever earn enough to pay it back.

I find it very wrong that young people should be encouraged to begin their adult lives in 1000s of pounds worth of debt.

b33r

seven-day-weekend wrote: »

`Oh dear, so the lowest earning will be hardest hit if they ever earn enough to pay it back.

I find it very wrong that young people should be encouraged to begin their adult lives in 1000s of pounds worth of debt.

True but you HAVE to earn 15k before you pay anything back and even then it would be hardly anything. I know it may be changing soon but considering student loans are in-line with inflation I don't really consider it a debt.

Some countries higher education is free (sweden i think?? not sure) but then taxes are higher to compensate, it's swings and round-a-bouts really.

Plus why not start life with a debt, most ppl will have to manage it for the rest of their lives. One of the reasons HSBC are giving for their overdraft charge they are bringing in is that "the sooner people realise money isn't free the better" - Not that I agree with them mind and I think they are making a massive mistake, but I see their point.