Student loan interest

cadenza82

I received this morning my annual statement for my student loan which stands at £1406.10, the interest for the 01/04/07-31/01/08 being £40.92. It indicates the status is 'In Repayment', though the earned income threshold is £15,000 so I haven't actually repaid anything yet. I was surprised to see on the reverse of the statement that the interest rate had risen from 2.4% for the period 01/09/06-31/08/07 to 4.8% from the 01/09/08. Am I reading this correctly, as it seems quite a big increase!

David

CLAPTON

the 'interest rate' charged during the period sept to august is the RPI figure for the previous March... so yes this year the rate is 4.8% because that wwas the RPI for March 2007;
from sept 2008 the rate will be 3.8%.

cadenza82

Is it worth paying it back in full?

CLAPTON

depends upon your circumstances....
if your savings can earn more than 4.8% (falling to 3.8% ) then keep it (take tax into account)
if you're saving for a deposit on a house then you may wish to keep the student loan
if you have other debts then these are best sorted first

p1tse

wish my student loan was that cheap

think i had about £3k/yr x 4 = about £12k!!!!

if you're not going to hit £15k soon, don't bother
once you'll do it will drip out of your salary

cadenza82

p1tse wrote: »

if you're not going to hit £15k soon, don't bother
once you'll do it will drip out of your salary

What's the position if you're self-employed?

sreppaw

I think that the 'extra tax' of student loans has been a really bad idea and will cause problems for already over taxed young middle income families in years to come.

Consider this:
Take a fairly average loan of £12000 for 2007 graduates with the current interest rate of 4.8% there will be an interest charge of £576, to service that with the default repayment of 9% of gross income over £15000 needs a salary of £21400 (576/0.09+15000) before any repayment is actually made.

The median income for graduates 1 year after is about £18000 (HESA, ignore surveys that only include 'graduate' jobs at large companies as this leaves out a lot of people who are not in 'graduate' advertised jobs)

This will have the implication that it will take a few years for loans to actually start reducing. Also it is estimated that the average debt will be £20k+ for students starting now due to tuition fees of over £3000/year. By the time that these young people are starting a family it is likely that the majority will still be repaying student loans and facing an effective extra 5% income tax.