Student Loan Interest Rate Unfair

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November 20th 2018
Week 33
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Student Loan Interest Rate Unfair

MP's warn interest rates are too high and should be changed.

We have previously reported how student loan interest rates are calculated - highlighting the use of RPI on post-2012 loans.

The Treasury Select Committee has now declared that the use of RPI (Retail Price Index) as a basis for the interest rate of these loans, which would push the interest rate on tuition fees to 6.3 percent later this year - is unreasonable and does not reflect actual market rates, the actual rate of inflation or the cost to the government of borrowing the money in the first instance.

The suggestion is to replace RPI as a measure of inflation for setting the student loan rates and instead use CPI (Consumer Price Index), which is seen as a more accurate measure of inflation in general. CPI is currently (March) 2.3 percent - one percent less than RPI, which is 3.3 percent.

Using RPI, the interest rate on student loans from this Autumn would be 6.3 percent - however, switching to CPI would make the rate 5.3 percent, which is still not representative of borrowing on the open market, or the cost of borrowing to the government.

Interest rates are charged on a sliding scale where those earning the lowest amount of the payment threshold amount are charged interest at just RPI (3.3 percent) - whereas those earning at the higher end are charged the RPI plus 3 percent (6.3 percent).

The Department for Education (DFE) is currently reviewing tuition fees and student loans and will continue to use the current system until the review concludes next year.

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