Student Loan - Is interest calculated as simple or compound interest ?

Hi.

Firstly I have watched Martin's recent specials on Student Loans and read the extensive material on the MSE site - I do appreciate that it should be viewed as a tax not a loan.

However my son is on the Plan 2 and in the category that Martin says might want to think a little more carefully about whether it would be wise or not to overpay on their repayments.

However to do the maths and work out if it would be beneficial or not I need to know if the interest is calculated as simple interest (ie. just on the principal loan) or as compound interest (ie. loan and accumulated interest).  I can't seem to find this answer on any of the Gov.uk, Student Finance England or MSE sites.

So please can someone confirm whether the interest is calculated as simple or compound interest ? 

If its compound, then I feel the "loan" will have accelerated away from him even before he's graduated from his 5 year course with little chance of him catching it up. 

Thanks,
Steve

Replies

  • Ed-1Ed-1 Forumite
    3.6K Posts
    Ninth Anniversary 1,000 Posts Name Dropper
    Forumite
    Hi.

    Firstly I have watched Martin's recent specials on Student Loans and read the extensive material on the MSE site - I do appreciate that it should be viewed as a tax not a loan.

    However my son is on the Plan 2 and in the category that Martin says might want to think a little more carefully about whether it would be wise or not to overpay on their repayments.

    However to do the maths and work out if it would be beneficial or not I need to know if the interest is calculated as simple interest (ie. just on the principal loan) or as compound interest (ie. loan and accumulated interest).  I can't seem to find this answer on any of the Gov.uk, Student Finance England or MSE sites.

    So please can someone confirm whether the interest is calculated as simple or compound interest ? 

    If its compound, then I feel the "loan" will have accelerated away from him even before he's graduated from his 5 year course with little chance of him catching it up. 

    Thanks,
    Steve
    It's compound. That's really one of the objectives of the interest. To ensure the loan is not paid off so that the tax continues for the maximum period.
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