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Interest rates on student loans are going up.

This autumn, interest rates on student loans will be going up by almost a third and many tuition fees will also be increased from £9,000 to £9,250 a year.

Why is the interest rate going up?

The rate of interest students are charged is 3% above the RPI – the retail price index. The Retail price index is a way of measuring the changing prices of everyday items such as groceries over time. This is a good indication of the rate of inflation. As inflation goes up, so does the RPI. During the last few years, inflation has remained low and the RPI has sat at around 1% meaning that the student loan interest rate was around 4%.

Now however, as inflation is increasing the RPI is now at 3.1% so the student loan interest rate will increase to 6.1%. This is the amount of interest you are charged from the day you take out your student loan.

Couldn’t I get a loan cheaper somewhere else?

There are definitely cheaper loans available, but the advantages of the student loans are as follows:

1. You do not have to be earning to borrow that money. It is lent to you on the understanding that you will graduate and earn money in the future.
2. You do not have to start repaying the loan immediately.
3. When you graduate, you do not have to start repaying the loan until you are earning more than £21,000
4. If you stop earning at any point, for any reason, your repayments stop until you start earning again.
5. The loan is cancelled if it has not been paid off after 30 years.

Don’t panic!

You may read about this in the media, where they love to scaremonger. Headlines about the amount of debt that students are likely to end up being saddled with, gets readers interested.

However, the fact is, the amount you repay still remains at 9% of whatever you earn over £21,000. Although the amount you will eventually end up owing will definitely be greater, it also means that the likelihood of you paying off the loan, decreases. Those students who earn more and pay off their loans quicker are those who will end up paying more than they would have done.

To calculate what your loan repayment is likely to be have a look at our student loan calculator.

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