Student loans interest repayments to rise

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Graduates face higher interest rates on student loans in the future following the latest rise in inflation.

Nearly three million students and graduates can expect to see the cost rise in September.

The Student Loans Company resets the interest rate payable on 1 September, based on the level of Retail Prices Index (RPI) inflation rate in March.

RPI rose to 4.4% in March, leading to an expected increase from the current zero rate for some graduates.

Date effect

Interest rates for student loans are different depending on when the loans were taken out.

For loans taken out before 1998, interest is set at the level of RPI in March.

So those people with these loans are currently paying minus 0.4% interest after RPI turned negative for the first time in 50 years in March 2009, but should expect to start paying interest in September.

Interest on loans taken out after 1998 is set at either RPI in March or the Bank of England Bank rate (0.5%) plus 1%, depending on which is lower.

This will mean an increase from the current zero rate being charged. The Student Loan Company previously ruled that negative interest rates did not apply to these borrowers.

The changes have yet to be confirmed, as the government needs to set the rates formally.

The student loans system descended into crisis last year, with student facing delays in getting their advances, after the SLC took over the processing of all England's student applications for grants and loans for the academic year 2009-10 from local authorities.

Source: http://news.bbc.co.uk/2/hi/business/8634820.stm