Inflation sees student loan rates hiked - Loans - News - Moneyfacts


Inflation sees student loan rates hiked

Inflation sees student loan rates hiked

Category: Loans

Updated: 29/04/2010
First Published: 22/04/2010

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.
Many former students face far higher repayment rates on their loans as a result of the sharp spike in inflation.

With savers lamenting an increase in the Consumer Price Index rate of inflation to 3.4% earlier this week, it is now the turn of students to suffer.

The interest rates for graduates that took out a loan before 1998 are based on the Retail Prices Index (RPI) inflation rate that is reported each March.

As such, those that are paying a rate of -0.4% (the inflation figure reported last March) are now faced with paying 4.4% interest on their student loans.

The new rates, which are expected to be confirmed formally by the government, will come into effect from September.

"Some graduates who are currently paying a 0% interest rate on their loans will be disappointed to see their interest rate grow to over 4% later on this year," commented Darren Cook, spokesperson for

"With a variable rate of interest, you need to balance the peaks with the troughs. But an interest rate of 4.4% is still one of the cheapest forms of finance around."

Graduates that took out a loan after 1998 will continue to pay interest that is equal to the base rate of interest plus 1% or the RPI, depending on which measure is the lowest.

At present, people with these loans are paying interest of 0% as the Student Loan Company ruled that negative interest rates would not apply to them.

If the base rate was to remain at 0.5%, graduates with these loans would pay an interest rate of 1.5%.

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