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Original poster

What the student loan interest rate announcement means

39 replies

abigailfoster · 13/04/2022 17:44

There is a lot of scary posts online currently, i just wanted to help decode some of the statistics.

First up, the repayments you make will not be going up.
The loan value itself will be going up
Currently the student loan increases by RPI+3% and until recently its been about 4.5%
From Sep 22 to Mar 23(when a cap comes into play) the rate for higher earners so those over £49k will go up to 12%.

Questions?

OP posts:
BurscoughBooths · 13/04/2022 17:47

It’s disgusting to charge so much, regardless of whether or not it is repaid.

Horcruxe · 13/04/2022 17:49

Its disgusting .

They've got no hope of paying it off. It's a huge tax for the rest of their working lives.

Original poster
abigailfoster · 13/04/2022 17:50

Agree BurscoughBooths - with this current student loan the loan gets wiped after 30 years however students who start from Sep this year will be repaying for 40 years!

OP posts:
IfYouCantSeeMyMirrors · 13/04/2022 17:56

I think the point has to be made too - and is explicitly made on the student loans bit of the government website - that these terms and conditions can be changed, including retrospectively.

"The regulations may change from time to time, which means the terms of your loan may also change."

Who has complete confidence that they will never be asked to repay in full, including the extortionate amount of interest?

titchy · 13/04/2022 18:01

@IfYouCantSeeMyMirrors

I think the point has to be made too - and is explicitly made on the student loans bit of the government website - that these terms and conditions can be changed, including retrospectively.

"The regulations may change from time to time, which means the terms of your loan may also change."

Who has complete confidence that they will never be asked to repay in full, including the extortionate amount of interest?

Technically yes. But politically virtually impossible. Hence why the recent changes have not been retrospectively applied.
Original poster
abigailfoster · 13/04/2022 18:05

@IfYouCantSeeMyMirrors

I think the point has to be made too - and is explicitly made on the student loans bit of the government website - that these terms and conditions can be changed, including retrospectively.

"The regulations may change from time to time, which means the terms of your loan may also change."

Who has complete confidence that they will never be asked to repay in full, including the extortionate amount of interest?

This increase is meant to be capped by March 23 so fingers crossed!
OP posts:
Callisto1 · 13/04/2022 18:58

It seems that student loans are becoming a
graduate tax by stealth! If the life of the loan is 40 years what happens to mature students? Do they have to repay past retirement?

IfYouCantSeeMyMirrors · 13/04/2022 19:48

@titchy: here's Martin Lewis on it all:

'In the past, it has always been thought that retrospective changes to the system go against natural justice and it hasn't happened – after all, each time a new student finance system has been introduced, it has only applied to new starters.

Yet that sacred trust was breached in November 2015, when the Government froze the repayment threshold for all those who started in 2012 and beyond – the threshold was meant to be increased. This effectively hiked the cost of student loans above what people had thought they would be when they started university. That shouldn't happen – no commercial firm would be allowed to do this.

The Government still refuses to enshrine many elements of student loan rates into statute – meaning it can change rates without a vote in the House of Commons. This is a very worrying situation, as it means it is difficult to trust the system. But unfortunately if you want to go to university you've got no choice.'

I tend to agree that nothing apocalyptic is going to happen with student loans. But I know that the element of risk - that terms could suddenly change - is part of the general sense of hesitation that many have about getting involved with the system altogether. The rich get round that by paying upfront - and if you've seen the Higher Education boards here recently, you'll know that more and more people are planning to do that. Others get round it by discouraging their children from applying at all.

Chewbecca · 14/04/2022 08:39

Does anyone know where the interest 'goes'? I.e. does the govt or SLC profit from it or is it necessary for the rates to be this high to balance the non payment by lower earners?

titchy · 14/04/2022 08:55

They don't 'go' anywhere. They're not ring fenced. They go the same place as tax and NI (which isn't put into another special pot either).

titchy · 14/04/2022 08:56

Oh and the Gov doesn't make any sort of profit on loans. Although of course they did introduce loans in order to slash HE expenditure.

PremiumLemon · 14/04/2022 09:00

@Callisto1

It seems that student loans are becoming a graduate tax by stealth! If the life of the loan is 40 years what happens to mature students? Do they have to repay past retirement?
Yes they do. My DH retrained as an allied health professional (NHS). He will have to keep repaying out of his pension, until he is 74.
WoolyMammoth55 · 14/04/2022 09:14

OP, can I ask a question? (I'm a literature grad so clueless about numbers!) I was in the first cohort to pay tuition, started Uni in 1998 and graduated 2001 - the system was so new that my classmates who had deferred places sat in the same lectures and took the same exams but weren't charged...

I think that my loan balance is cancelled out in 2031, is that right as far as you know? (Obvs provided they don't change the rules?)

And does this interest change affect me?

I have kids now so will be worried for them, but oldest DS doesn't turn 18 until 2035 - so hopefully will get 4 years of not worrying about Uni debt at some point in my adult life! :)

Original poster
abigailfoster · 14/04/2022 10:03

@WoolyMammoth55

OP, can I ask a question? (I'm a literature grad so clueless about numbers!) I was in the first cohort to pay tuition, started Uni in 1998 and graduated 2001 - the system was so new that my classmates who had deferred places sat in the same lectures and took the same exams but weren't charged...

I think that my loan balance is cancelled out in 2031, is that right as far as you know? (Obvs provided they don't change the rules?)

And does this interest change affect me?

I have kids now so will be worried for them, but oldest DS doesn't turn 18 until 2035 - so hopefully will get 4 years of not worrying about Uni debt at some point in my adult life! :)

HI WoolyMammoth, of course.

OK so yes 30 years is the current limit to have your student loan wiped. (this only goes to 40 for those starting uni in 2023)

The interest change does affect you but i would point out the repayments stay the same its just currently interest rises at RPI+3% and RPI has risen so much the usual 4.5% increase (rpi+3) is going up to 12% for higher earners and 9% for lower earners.

Ah yes 4 years to get them as much finance education as possible so they can make the right decision for their future.

OP posts:
SickAndTiredAgain · 14/04/2022 10:21

OK so yes 30 years is the current limit to have your student loan wiped. (this only goes to 40 for those starting uni in 2023)

It’s 30 years for those on plan 2. For those one plan 1 who started uni after 2005 it’s 25 years, but for @WoolyMammoth55 it looks like it might be when she’s 65. If I’ve understood the below link correctly? I’m on plan 1, post 2005.

www.gov.uk/repaying-your-student-loan/when-your-student-loan-gets-written-off-or-cancelled

OnceUponAThread · 14/04/2022 10:36

The interest rate change doesn't affect those on Plan 1 either, so I would have thought that @WoolyMammoth55 is in the clear.

On Plan 1, the interest rate charged is either the Retail Price Index or the Bank of England base rate plus 1%, whichever is lower.

As that the base rate has risen to 0.75% - when I sign into my student loan account, the interest is currently 1.75%. Which is as expected.

It's the unfortunate people on Plan 2 that will be hammered by these interest rate changes.

Although it is worth mentioning that the vast majority of people never paid back the balance of their Plan 2 loan before it was wiped, so the interest rates make no odds (as they never pay any of that interest back).

However, the threshold freeze and the lengthening of terms mean that more people will be tipped into paying interest (and at higher levels). These people will be affected and may want to make overpayments to clear their loan sooner.

user1497207191 · 14/04/2022 13:47

@Chewbecca

Does anyone know where the interest 'goes'? I.e. does the govt or SLC profit from it or is it necessary for the rates to be this high to balance the non payment by lower earners?
Those who pay the interest are subsidising those who don't earn enough to pay the repayments.
Mia85 · 14/04/2022 13:54

Moneysavingexpert has a helpful page with the information broken down for different cohorts of graduates www.moneysavingexpert.com/news/2022/04/student-loan-interest-rates-to-rise-in-september/

Original poster
abigailfoster · 14/04/2022 14:05

[quote Mia85]Moneysavingexpert has a helpful page with the information broken down for different cohorts of graduates www.moneysavingexpert.com/news/2022/04/student-loan-interest-rates-to-rise-in-september/[/quote]
Thank you :)

OP posts:
Original poster
abigailfoster · 14/04/2022 14:07

@OnceUponAThread

The interest rate change doesn't affect those on Plan 1 either, so I would have thought that *@WoolyMammoth55* is in the clear.

On Plan 1, the interest rate charged is either the Retail Price Index or the Bank of England base rate plus 1%, whichever is lower.

As that the base rate has risen to 0.75% - when I sign into my student loan account, the interest is currently 1.75%. Which is as expected.

It's the unfortunate people on Plan 2 that will be hammered by these interest rate changes.

Although it is worth mentioning that the vast majority of people never paid back the balance of their Plan 2 loan before it was wiped, so the interest rates make no odds (as they never pay any of that interest back).

However, the threshold freeze and the lengthening of terms mean that more people will be tipped into paying interest (and at higher levels). These people will be affected and may want to make overpayments to clear their loan sooner.

True not as high as the 12% but her loan interest is going up still to 1.75% with the bank of england's base rate
OP posts:
Bunnycat101 · 14/04/2022 16:23

The 12% is morally reprehensible. There will be a chunk of students who will be close to paying off the loan eventually. On a loan of £40k they’d be adding nearly £5k extra to their debt which would take then an extra few years to pay back. I just can’t see how it can possibly be justified. I remember being angry enough when mine was at 5/6% but in truth most of the years I was paying it back the interest was negligible. 12% shouldn’t be allowed.

WoolyMammoth55 · 14/04/2022 21:31

@SickAndTiredAgain oh my god! I'm really shocked about paying it back til I'm 65?! I would swear on my life that in 1998 we were all told the debt would be wiped in 30 years if we hadn't repaid! Did I somehow hallucinate that? (I was not a psychedlic-using teen!) Have they changed the rules since we took out our loans?

My jaw is on the floor right now... That's really not what I thought I signed up to!

LoLo2020 · 18/04/2022 17:10

I managed to get logged into my student loans account after many years of being in the dark (I graduated in 2001). Surprised to see that I only owe just over £2k now and they've moved me onto DD to ensure I don't overpay. As I've increased my earning, of course it's been taken at source.

I really feel for those going to university these days, I owed a measly £9k which I realise is nothing compared to what some students are having to borrow now :(

titchy · 18/04/2022 17:14

[quote WoolyMammoth55]@SickAndTiredAgain oh my god! I'm really shocked about paying it back til I'm 65?! I would swear on my life that in 1998 we were all told the debt would be wiped in 30 years if we hadn't repaid! Did I somehow hallucinate that? (I was not a psychedlic-using teen!) Have they changed the rules since we took out our loans?

My jaw is on the floor right now... That's really not what I thought I signed up to![/quote]
It's still 30 years for you.

EmpressCixi · 18/04/2022 17:16

@Chewbecca

Does anyone know where the interest 'goes'? I.e. does the govt or SLC profit from it or is it necessary for the rates to be this high to balance the non payment by lower earners?
It is SLC profit. The student loan money doesn’t come from the government but from the Student Loan Company, a private company. It is regulated by the Government. The Government then pays off your loan balance if any is left after thirty years.

The OP is a bit disingenuous saying repayments won’t go up. The monthly repayment won’t, but if you are a middle to high earner on track to pay off your loan before the thirty year term, the increase in interest rates will add extra YEARS of EXTRA REPAYMENTS to your life.