Great News Guys, The Interest Rate On Student Loans Is Set To Rise By a Third
Due to the recent decrease in value of the British Pound thanks to the Brexit vote, inflation rates have surged, taking interest rates along with them. For students, 85% of whom voted to remain in the EU according to research agency YouthSight, this means that interest rates on student loans will be increased by a third.
If you took out a student loan after 2012, the current interest rate varies between 1.6%-4.6% depending on your salary, but this will soon rise to as high as 6.1%.
Although interests rates are at record lows for things like mortgages and personal loans, student loan interest rates will be rising from September. Interest rates on student loans are set according to the March RPI (Retail Price Index) rate. If RPI goes up, which it has done from 1.6% to 3.1%, so does your student loan interest rate.
This means that if you’re a student who took out a student loan from September 2012 onward and have now graduated, your interest rates will be rising to anything between 3.1% and 6.1% depending on how much you’re earning.
There is some sort-of good news though. Although Finance Expert at money advice website Save the Student Jake Butler says the increase in student loan interest rates is “worse than expected” he also thinks it’s “highly unlikely” you’ll ever need to pay it off in full. He goes on to explain that, “in reality, this increase is just adding to the massive amounts of accumulative student loan debt that the government will never see.”
For those of you who took out a loan between 1998 and 2011, although you need to start paying back your loan at a lower salary, your interest rates will be staying the same at 1.25%. Save the Student explains that “this is because it’s based on whichever rate is lowest out of RPI OR the Bank of England base rate + 1%.”
So what difference does this interest hike make on your student loan debt actually?
Here at thedailytouch.com, we did a bit of working out using Save the Student’s Student Loans Repayment Calculator, just to see how much of an impact this interest increase will affect how much you pay back.
Say, for example, you took out a student loan last year to pay for a three year degree. That’s £27,000 worth of tuition fees. Then say you get a graduate job with a starting salary of £22,000. Add the inflation rate (RPI rate) which is now 3.1% and an average salary growth of 1.5%.
Because you accumulate interest on your loan while you’re studying, your total debt after graduating would be £31,343, but you’d ultimately be repaying a total of £42,611. Yes, really.
Thanks, Brexit. 👌