Student Loan Interest May Disappear As Deflation Kicks In

Fri, 24 Apr 2009

The Department for Innovation, Universities and Skills (DUIS) has confirmed it is in discussions with the Treasury over what interest rate on student loans should be for the 2009-2010 academic year.

Reports suggest that students could see the interest charged on their loans wiped off with rates falling to zero per cent or even lower as Britain moves closer to outright deflation.

The student loan interest rate for those who took out their loans from September 1998 onwards is fixed each year in September, according to the rate of inflation as measured by the retail prices index (RPI) in March.

Last month, RPI went below zero for the first time in five decades to -0.4 per cent, according to data from the Office for National Statistics.

As deflation kicks in, students and graduates are now expecting the student loan repayment rate, which currently stands at 1.5 per cent, to fall to zero per cent or lower from September, which could result in them actually earning interest on their loans .

A spokesperson for the Student Loans Company said: "Now that we know that the RPI is negative, Treasury and DIUS will consider the options and make an announcement shortly."

"The interest rate is only applicable from September 1st 2009, so there is no need for an immediate decision."
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