There’s some good news for graduates who have student loans taken out since 1998 (actually, I think it may be for those who started uni in 1998 or later, and took out a student loan) – interest rates charged on the loans are dropping thanks to the recent Bank of England rate cuts.
Interest on these loans is usually linked to the rate of inflation, and set once a year, in September, based on March’s inflation figure. Last March inflation was 3.8%, and so the interest rate on student loans moved to this in September.
However, as Money Week points out, student loans have a little known clause in the terms and conditions which say that the loan must not be more than 1% higher than the average of the base rates from 11 major British banks.
Following the Bank of England’s rate cuts at the end of last year, that clause has come into effect, which has consequently brought the interest rates for student loans down to 2.5%.
Now, this won’t mean there’s any more money in your pocket each month, as repayments are linked to your income, but the total amount owed will reduce in “real terms” next year, as the outstanding amount will grow at less than the rate of inflation.
It’s often said that a student loan will be the cheapest form of borrowing for many, and right now, that’s definitely the case.
There’s more on the rate change at the Student Finance Blog, and it’s also worth reading their guide to repaying your student loan.
photo credit: CarbonNYC
College is becoming increasingly difficult to afford.
Borrowing money for college is a big responsibility but college remains a smart investment for obtaining a satisfying career that earns a competitive salary. Nice post.