All over the country, students are preparing for the new Academic Year. Many of them will be starting University for the first time and face adjusting to University life and coping with their own finances for the first time in their lives. After the euphoria of exam results comes the reality. Student debts are something to be faced for a long time, even if they don’t attract interest for the time being. They’ll still need to be repaid in the end.
Most students, who took out loans after 1998 will be delighted to see their loan interest set at zero per cent. Some even luckier ones who achieved their loans before that date will have their interest rate reduced to -0.4 per cent. This means that even if no payment is made towards paying off their loan, it will have dropped by the end of the academic year.
There has been a change in the way in which repayments are carried out. Prior to 1998 a fixed term mortgage-style was employed and interest was linked to the Retail Price Index alone. For this reason it means that there are 390,000 students and graduates still paying off loans from before 1998 and they will gain from a minus interest rate.
Interest rates are calculated from the beginning of September each year on the income contingent loans which came into being in 1998 are based on either the Retail Price Index of the previous March or the Bank of England base rate, plus one per cent. Whichever figure is lower will be used. For some years the Retail Price Index was used. At the present time a decision has been made to set the rate at zero.
A representative of the Student Loans Company made the statement “The decision has been taken because loans are already well subsidised and it would be difficult to justify to taxpayers a situation whereby students take out loans in 2009-10 and their balances are immediately reduced. This will affect those who have an outstanding student loan taken out after September 1998, as well as applicants for both maintenance loans and tuition fee loans in the current and next academic year.”
We understand that repayments are handled in a different way for the two schemes. The threshold for repayment for loans which are income contingent is 15,000 pounds this is from 1998 onwards. Borrower will be required to repay a percentage for earnings over that amount. This is currently set at nine per cent.
The Student Loans Company are of the opinion that is the Government had decided to set a negative rate for the current year, the result would have been a lowered threshold and would have meant borrowers starting to repay higher amounts at an earlier date. For students whose loans were taken out prior to 1998, the threshold is still 25,936 pounds. When they reach this amount of income, they will start to repay their debt.
This is obviously very good news for a great many students, they are facing the most worrying employment market for many years. What they seek is some stability, both in the way that student loans are applied and in the job marked on graduation.