MSE News: Graduates brace themselves for September interest rate hike as inflation cr

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Students and graduates can expect to pay more interest on their student loan from September...

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'Graduates brace themselves for September interest rate hike as inflation creeps up'

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Lokolo

1998-2012 'income-contingent style' loans: If you started higher education between the years of 1998 and 2012, then the current interest rate you pay is 1.5%.

The interest rate is set at 1% plus whichever is lower out of either the 0.5% Bank of England base rate or the rate of inflation. The March RPI inflation rate of 1.6% means that the interest rate for 1998 to 2012 graduates will remain at 1.5%.

I thought the current rate was 0.9% not 1.5%......

Figures today from the Office for National Statistics show the Retail Prices Index (RPI) rate of inflation has crept up to 1.6% in the year to March, from 0.9% in the year to March 2015.

.... So last March's RPI was 0.9% so the interest rate is this for 1998-2012 loans, not 1.5%.

Ed-1

MSE_Callum wrote: »

Students and graduates can expect to pay more interest on their student loan from September...

Read the full story:
'Graduates brace themselves for September interest rate hike as inflation creeps up'

Click reply below to discuss. If you haven’t already, join the forum to reply. If you aren’t sure how it all works, read our New to Forum? Intro Guide.

Lokolo is correct. The current rate for 1998-2011 starters is 0.9% (lower of March RPI and 1% + base rate).

I'd also point out that the headline of "brace themselves" is rather misleading when the interest rate is largely irrelevant to many graduates. e.g. "If you are a graduate in this date bracket you start repaying your student when you earn over £17,495. This amount changes on 6 April every year." So you should be pointing out that graduates starting in 1998-2011 will actually be paying less as the repayment threshold will increase by more since RPI is higher - it will increase from £17,495 to £17,775 on 6th April 2017.

You should also point out that the rate on postgraduate loans will be 4.6% (RPI + 3%) from September.

VT82

Ed-1 wrote: »

I'd also point out that the headline of "brace themselves" is rather misleading when the interest rate is largely irrelevant to many graduates.

Quite. Why on Earth you'd need to 'brace yourself' for a change to the rate of reduction in your net debt, rather than any actual change to your cashflow, I'm not sure!

edinburgher

I'd also point out that the headline of "brace themselves" is rather misleading when the interest rate is largely irrelevant to many graduates

Awww - you stole my rant!

Another nonsensical clickbait headline..

Still, always worthwhile being informed, we have got very used to low student loan interest rates and there is always the possibility that the current position of 'there's no point in paying them off if you have any other debts etc.' may change.

rtho782

Not always irrelevant.

My partner is a Nurse, graduated in 2015 and is on the post 2012 scheme. She got a bursary and her tuition fees paid by the NHS, and so only has about £7k of student loans. She earns about £33k, and will pay the student loan off in a few years if we do nothing.

She will be paying 4.6% as from september, which is a higher APR than the mortgage we are about to take out (we have no other debt). So it may make sense for us to pay this off instead of overpaying the mortgage as was previously planned.

Lokolo

The interest rate students pay for these loans is set at whichever is lower: the 0.5% Bank of England base rate plus 1%, or the rate of inflation. The March RPI inflation rate of 1.6% means that the interest rate for 1998 to 2011 starters will remain at 0.9%. It's likely to rise to 1.5% from September.

Does this not make sense to anyone else? Not sure if it's because I haven't woken up yet.

The interest rate students pay for these loans is set at whichever is lower: the 0.5% Bank of England base rate plus 1%, or the rate of inflation. The March RPI inflation rate of 1.6% means that the interest rate for 1998 to 2011 starters will rise to 1.5% in September, based on the current base rate of 0.5%.

Does that not make more sense?

Lokolo

Thanks whoever updated the article

Ed-1

It beggars belief just how poorly student loan repayments get reported on in the media which does absolutely nothing to improve understanding.

This Independent article is a prime example:

http://www.independent.co.uk/news/business/news/student-loan-interest-rates-set-to-rise-by-up-to-75-a6982621.html

"RPI was just 0.9 per cent in March 2015. But it was 1.6 per cent by March 2016, an increase of more than 75 per cent, adding a significant amount to student loan repayments."

Of course, it adds nothing to student loan repayments unless the graduate eventually pays off the entire loan. And as I have pointed out, RPI increases the repayment threshold (for 1998-2011 loans) and therefore reduces repayments. The higher RPI is, the lower the repayment is.

"The Government typically confirms a rate increase in the summer, but if it continues to be calculated in line with RPI, that means that from September the new base rate of interest will be 1.5 per cent, rising to a maximum of 4.6 per cent. The 1.5 figure comes because the rate is the lower of bank interest rates plus 1 per cent or RPI. At the moment, bank interest rates are only 0.5 per cent so the former is lower."

This paragraph just about sums up how poorly the media understand the system. They are mixing up rules for different systems. For 1998-2011 loans, the interest rate will be 1.5% if the base rate stays at 0.5% for the reason they state - however it can't increase to a maximum of 4.6% as that is the maximum rate for post-2012 loans for which the 'base rate' of interest will be 1.6%.

To be fair to them, they do state "the financial impact of these changes will be most significant for higher earners" but that's not how the article comes across. I've seen previous articles in the media mix up the two systems which say things like graduates repay 9% of their income above £15,000 once they start earning £21,000.

They also state "for students with a £40,000 debt, such as students in London or masters students, that represents an additional £280 of interest per year." Of course this is factually incorrect too as the average student debt for students outside London on 3 year courses is over £40,000. It will be much higher then this for students in London and for those who do masters courses. It will also increase from 2016/17 due to the switch from maintenance grants to loans.

They also incorrectly quote Martin (I assume he gave them correct info):

"Pre-1988 if you're not paying it by now you're probably deferring it. Post-2012 the rate is high, but there's a question of whether you will ever clear it anyway unless you have a starting salary over £35,000, as the loan wipes after 30 years. For those with loans between 1988 and 2012,..."

Of course it's 1998, not 1988. What a dogs dinner of an article.

System

Hi there, we've taken some of your comments on board and have tweaked the headline and added some clarification to the story. Apologies for any confusion caused.

Ed-1

MSE_Callum wrote: »

Hi there, we've taken some of your comments on board and have tweaked the headline and added some clarification to the story. Apologies for any confusion caused.

Any particular reason why you've now got rid of the (more important) fact that the plan 1 (1998-2011) repayment threshold changes on 6th April every year (by RPI)?

These guides could also be updated:

Postgraduate student loan guide with the interest rate from September 2016 (4.6%). Therefore while the inflation rate starting in Sept 2016 is unconfirmed, it is almost certain to be 3% plus the previous March's (2016) RPI rate. As an example, if we went on March's 2015 inflation rate, which was 0.9%, the amount you owe will grow by a total of 3.9%. We will know this March's inflation rate in April.

Should I repay my student loan? guide with the fact that the regulations were amended in 2014 to increase the 1998-2011 loan repayment threshold indefinitely by RPI on 6th April each year (having initially been indexed to RPI up to 6th April 2015 in the 2011 regulations):

Any changes due? However those on 'post-1998' loans will see their repayment threshold (how much you need to earn before you start paying) increase with inflation annually from April 2012 to April 2016 (based on the RPI inflation rate in the March the year before).

See my post from 2014 over on the student board pointing this out here.