Students disappointed by broken principle

Each September the Student Loan rate changes, based on the Retail Price Index rate from the previous March.  This March’s RPI was -0.4% however most students who could have expected to see student loan balances reduced in line with this will be disappointed.  Only Students who took out there loan pre 1998 will actually see their balances reduced by 0.4%.  For students who took out the loan post 1998 the rate will be dropped from 1.5% to 0% this September.  

As Student loans were meant to linked to inflation, and this principle is not been followed, those students who took the loan out after 1998 are now out of pocket as their purchasing power is dilapidated.  The monthly payments for Students will remain at the same rate, as borrowers are required to pay back nine percent of their earnings over £15,000; so as the interest rate has been reduced to zero, the balance will reduce at a greater rate.  This is still not good enough for some students who believe that the principle should apply and that they should therefore benefit from this deflationary period by seeing the balances automatically reduced. 

It is worth noting that by applying deflationary rates to the balances of Student Loans, students taking out new loans would see the balances automatically reduced and the tax payer would have to fund this.  Deflation is now even higher than in March, sub one percent, so applying this principle to all student loans could put even more pressure on the economy in recession and the whole student loans system, as it could see the taxpayer funding further, greater reductions next year, and who knows about years to come.    

Dan Gale, Moneyextra.com

2009-05-20 14:02:48 © Moneyextra.com

Latest Daily News