Student’s are facing the possibility of an interest rate increase on their loans after last month’s inflation rise, according to a report in The Independent on Tuesday.
The rate of interest for the year is determined by the Student Loans Company (SLC) every September 1st, according to the level of the Retail Price Index (RPI) inflation in March of that year.
The rates differ for loans taken before and after 1998. While the pre-1998 loan interest rate is set simply on the RPI level in March, the post-1998 interest rate is set by either the RPI in March, or the Bank of England base rate (0.5%) plus 1%, depending on which is lower.
Student loans from pre-1998 are currently paying -0.4% on interest after inflation dipped below zero for the first time in fifty years in March 2009, while post-1998 loan users get no such luxury after the SLC judged negative interest rates do not apply to these borrowers.
The RPI figures stand at 4.4%, meaning from September pre-1998 borrowers face paying 4.4% interest on their loans, while post-1998 students are set to pay 1.5% interest on theirs. There are almost three million students and graduates that could be affected by these changes.