Students To Earn Interest On Their Loans

Fri, 04 Sep 2009

Nearly 400,000 graduates paying off student loans will see their level of outstanding debt fall over the coming months, even without repayments being made, as the rate of interest falls below zero per cent for the first time.

The UK’s government-backed student loans system uses the Retail Prices Index (RPI) measure of inflation to set an annual interest rate, which is applied each year from 1st September.

In March, the RPI turned negative for the first time in almost 50 years as the recession worsened. As a result, student loan interest now stands at minus 0.4 per cent - a first for the loan scheme .

However, the welcome reduction of loans only applies to those who took out borrowed money before 1998. The significantly larger number of students and graduates with post-1998 loans have been told their interest rates will only drop down to 0 per cent.

The Student Loans Company has defended its decision not to apply a deflationary rate, explaining that post 1998 loans are already "well-subsidised".

Consumer website MoneySavingExpert.com hailed the rate reduction as a "revolutionary day" for those that benefit, but said it was "unfair" that the 3.26 million UK students and graduates with post-1998 loans will not get the same treatment.
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