Student Loan Interest Rate Rise – What It Means for Students
News today that interest rates for student debt are to rise by upto a third to 6.1% have taken the student community by surprise. The increase is due to recent inflation figures of which the student loan interest rate is pegged. For those undertaking their degrees from 2012 onwards, this stands at RPI plus up to 3% dependent on income.
So what does this mean for you? Well, really not a lot in the short term. Repayments are fixed at 9% of any income over £21,000. So the increase will not change how much you repay each month (see our table below).
|Salary||Monthly pay back||Yearly pay back|
|£22,000||£7.50 per month*||£90 per year|
|£25,000||£30.00 per month||£360 per year|
|£30,000||£67.50 per month||£810 per year|
* That’s the price of your Netflix subscription in return for 3 years of education!
However, it does mean that it may take longer for you to pay off your debt, dependent on your future income, as the amount added onto the amount borrowed will increase. At a 35k debt (tuition+£3k maintenance per year) a 3.1% interest rate amounts to a £1085 per year being added onto your total amount of debt, at 6.1% this increases to £2135 per year. Although this seems like a lot, remember the entire debt gets wiped off after 30 years. The amount you pay will always be relative to your salary, and will never exceed it.
You will not pay a penny if you earn under £21,000, even if fees and interest rates rise. If fees do rise, they will not affect your payments, again this will always be 9% of income over 21k. So that 9% figure is more important in understanding how much you will be paying out of your pay packet towards your education.
Editor View - Change of direction on tuition fees?
The NUS report A Roadmap for Free Education published in 2014 sets out the long term goal of the NUS to change the thinking about whether university level education should be free. Arguments exist on both sides about whether this is an achievable aim, with many in support stating the societal benefit and existence of similar systems in Scandanavia and Germany. Those against free education point to public finances, in particular demands from more vulnerable parts of society for state funds amounting to over £36bn per year.
Given the lack of support from the incumbent Government for free education, is it time for the NUS to redirect its efforts to a more achievable aim? Indeed it could aim towards lower interest rates on tuition fee debt, shorter repayment terms, lowering the 9% figure, or a rise in the level you start paying. The credibility of the organisation has been called into question in recent months on and off campuses; a major rethink may be the best way to ensure the organisation survives further disaffiliations. Such a change is also likely to gain wider support from the national student body too given the real terms gain for all students. But this approach has its problems too.
A move to a campaign to change the terms of repayment would risk undermining many of the students who have fought for free education as shown by a series of marches across the country. However, with little success influencing the Government on free education and the grant system something might need to give. The NUS would also need to conduct a campaign for justifying any change in stance to ensure the vast majority of the students it represents are on board. Often having the Government’s ear is not enough; a strong inclusive NUS campaign with policies that the Government are more likely to compromise on would ensure our voice too is heard by those who can create real change.
So what do you think? Should the NUS stay with its current policy on fighting for free education or change to calling for a renegotiation of the terms of repayments? Let us know your thoughts!