Government Sets Student Loan Interest To 0 Per Cent

Fri, 15 May 2009

The Student Loans Company has announced this week that the interest rate on student loans will be set at 0 per cent from September.

While the decision means graduates will be able to repay their loans quicker, experts say the move is a u-turn by the Government on its promise to set loans at the rate of inflation .

Interest on student loans taken out after September 1998 is linked to the Retail Prices Index (RPI) measure of inflation, which recently fell to -0.4 per cent - indicating deflation.

As a result, it was hoped the student loan interest rate for the coming academic year would be reduced accordingly, which would of actually reduced student loan balances.

However, the SLC has decided against keeping the interest rate pegged to the RPI and has instead confirmed that it will be set at 0 per cent.

On its website, it explained: "It would be difficult to justify to taxpayers a situation whereby students take out loans in 2009/10 and their balances are immediately reduced."

Martin Lewis, the brains behind financial website MoneySavingExpert.com, labelled the decision "outrageous" and said that Government had "broken a binding principle of student loans ".

"Loans have always been set at the rate of inflation so there is no 'real cost' to them." He said. "Yet the Government has u-turned on this promise, and is effectively overcharging millions of students ."

The new 0 per cent interest rate will apply from September 1st this year until August 31st in 2010.
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