Thanks to the rising rate of inflation student loans look set to become a lot more costly come September 2010. Find out what you'll be charged if you still owe money on yours.
Extortionate petrol prices, increasing air fares and expensive fruit and veg pushed inflation up again in March. The Consumer Price Index (CPI) rose to 3.4%, while the Retail Price Index (RPI) soared to 4.4%. For those that aren't sure of the difference, the CPI excludes house prices from its calculations while the RPI includes it.
This jump is particularly significant for those still paying off their student loans as the March RPI figure is used to calculate how much interest you'll be charged on your borrowing from September.
How much will I pay?
The rate of interest applied to your student loan for 12 months from 1st September, 2010 is dependent on whether you took out your student loan before 1998 or after.
It's also not yet set in stone as the way interest is calculated on student loans could be changed in the next few months if a new Government come into power. This means that student loan rates won't be confirmed until after the General Election on 6th May, 2010 and most likely not until August (we will of course bring you the information as and when it's available.
In the meantime you may find it useful to read our Should I pay off my student loan early? article to see whether this is something you should consider.
However, if things stay as they are, the rate of interest applied to your student loan will be:
Pre-1998 loans
If you took out a student loan before 1998 and are still making repayments, the rate of interest you will pay on your borrowing come September will match the March RPI figure.
While this means that you're actually being paid interest on your student loan at the moment thanks to March 2009's negative RPI (-0.4%), unfortunately it also means that your rate is likely to rocket to 4.4% come September.
Post-1998 loans
If you took out a student loan after 1998 and are still making repayments, the rate of interest you will pay on your borrowing come September is the lower of the March RPI figure (4.4%) or the Base Rate + 1%.
At the moment this means that you're not paying any interest whatsoever on your student loan (the government imposed a 0% floor on post-1998 loans which is why you're not earning interest like those who took out a loan before 1998.) However, it also means that you will start paying interest from September, although at a lower rate than those with pre-1998 loans; that is unless the Base Rate takes an unexpected leap.
If the base rate holds at 0.5% until September then you will start off the academic year paying interest on your student loan at a rate of 1.5% (Base Rate of 0.5% + 1%). However, this will increase if the Base Rate rises over the course of the year.
