Student Loan rate for 08-09

laurenzo99

If what i've been reading on other posts is true that the rate of interest for student loans from sept 08- aug 09 will be 3.8%.

This is based on March's RPI figure being 3.8%, please see following publication, released today....

http://www.statistics.gov.uk/CCI/nugget.asp?ID=19&Pos=6&ColRank=2&Rank=432

Still higher than 2.2 year before but at least its a drop...

Lokolo

Yep got there before me, damn lectures.

Quite happy though. With CPI at 2.5%, IR at 3.8% and my interest from svaings at 6.5% I am 0.2% better off even with inflation :-D

Broke_Student

Lokolo wrote: »

Yep got there before me, damn lectures.

Quite happy though. With CPI at 2.5%, IR at 3.8% and my interest from svaings at 6.5% I am 0.2% better off even with inflation :-D

How did you work that out? I thought you would be better off by the difference in interest they charge (inflation) and what you earn in interest. Why did you add both measures of inflation and conclude a 0.2% profit?

Lokolo

Because in reality prices are always on the increase with inflation so you have to take this into consideration.

But to be fair, not that bothered, just want to use the money for a hosue deposit few years after I graduate.

Broke_Student

Lokolo wrote: »

Because in reality prices are always on the increase with inflation so you have to take this into consideration.

But to be fair, not that bothered, just want to use the money for a hosue deposit few years after I graduate.

What I'm trying to get at is CPI is a measure of of flation itself. You can't just grab two inflation measures and add them up when calculating your profit. Just use one measure (use the highest to be on the safe side).

i.e.
Assume you borrow £1000, inflation (CPI OR RPI) is 4% and you are earning 6% interest.

Next year your student loan debt will be £1040.
Your balance will be £1060.
An item which cost £1000 last year will not cost £1040 so you are £20 up.

The cost of items does not go up by CPI + 'IR'. It's one measure or the other.

Lokolo

Making it a bit clearer in my head....

I have £1000 student loan. I have 6.5% interest rate.

So I am getting per year £65. But paying £38 in interest to student loan. Which leaves me with £27.

2.5% of the £1000 is £25 which is the inlfation figure. So techically, with inflation I am gaining £2 profit.

Whereas I can see where you're coming from which is how I would work it out, but after being told otherwise I have been told this should be the way to work it out.

foofi22

Lokolo wrote: »

Making it a bit clearer in my head....

I have £1000 student loan. I have 6.5% interest rate.

So I am getting per year £65. But paying £38 in interest to student loan. Which leaves me with £27.

2.5% of the £1000 is £25 which is the inlfation figure. So techically, with inflation I am gaining £2 profit.

Whereas I can see where you're coming from which is how I would work it out, but after being told otherwise I have been told this should be the way to work it out.

Your profit is £27

Inflation is accounted for in the 3.8% figure - this is the inflation rate! You only use one rate of inflation not both as you have in your calculation - Broke Student above you had it right.

Although this rate may be higher for some people or indeed lower for others depending on what you spend your money on.

moneybelle

Surely this only works in a high interest ISA that doesnt deduct tax? Otherwise you have to take off the tax off the interest which brings it close to inflation anyway?

CLAPTON

Lokolo wrote: »

Making it a bit clearer in my head....

I have £1000 student loan. I have 6.5% interest rate.

So I am getting per year £65. But paying £38 in interest to student loan. Which leaves me with £27.

2.5% of the £1000 is £25 which is the inlfation figure. So techically, with inflation I am gaining £2 profit.

Whereas I can see where you're coming from which is how I would work it out, but after being told otherwise I have been told this should be the way to work it out.

you started out with nothing and you made £27
Your rate of return is therefore infinite, but you still only have £27.

Parisian

moneybelle wrote: »

Surely this only works in a high interest ISA that doesnt deduct tax? Otherwise you have to take off the tax off the interest which brings it close to inflation anyway?

ISA's do not deduct tax (if you are earning or not)... that is their purpose, and what makes them different from all other savings accounts.

moneybelle

Parisian wrote: »

ISA's do not deduct tax (if you are earning or not)... that is their purpose, and what makes them different from all other savings accounts.

:beer:
I know that! Maybe others don't so thats why I put it there!

Some people may already have a full ISA allowance.

Most other (non ISA)accounts do take off tax so 4.75% gross interest on an ordinary account will only return interest at 3.80% which matches the projected student loan rate next year. As long as your account yields more than 4.75% before tax, which is possible, it should be ok. But if interest rates drop, the margins may be slim.

6% gross interest become 4.8% net, which was the student loan rate this year from what I have seen posted. So it seems you really need high interest accounts to make it work if you cannot use an ISA.

My point of view is whether it is worth holding a student loan if you do not require one. i.e. Holding the loan in an accountto make more money from the interest than what you will be charged for.

If there are other non-taxed accounts with higher interest than the loan rate, apart from an ISA, please tell me. E.g. especially for poor students who are not earning but living off parents money.