Effects Of Student Loan Rate Increase

We have mentioned before that some people use pension loans as a way to help their children pay for their education. The cost of interest on student loans rose recently, increasing the amount that some graduates will have to pay back over the lifetime of their loan. This will not apply to all students, as many will not reach the threshold where their earnings are high enough to have to start paying back what they borrowed. But, for those who do have to make repayments, the effects of the new higher interest rates are analysed by The Telegraph who argue that they could add seven years to the amount of time it takes to repay the debt (note: some of their article requires a paid subscription) –

“…how much students pay back is based on what they earn, and most will never earn enough, the debt will simply be wiped at 30 years… The interest, so the arguments goes, is therefore irrelevant… This will hold true for many, but there are a number for whom the interest rate will matter a great deal – it will add years and tens of thousands of pounds to their repayments… For students who started university since September 2012 – and so are on “plan two” – interest on their loans starts at RPI (retail price index)  and increases up to RPI plus 3pc… RPI is a measure of inflation, and the rate in March of each year sets the student loan interest rate from the following September”