Interest rates for student loans are set to fall

24 April 2008 / by Daniela Gieseler
Good news for graduates who are struggling with their student loan repayments: from September 1st 2008, they could see the interest rate on their student loans fall.

The rate is set every year by the Student Loans Company (SLC), a public sector organisation set up to provide financial services to students, including loans and grants. SLC establishes the rate on the basis of the inflation figures in March.

Last year the interest rate on student loans was increased to 4.8 %, the highest interest rate for 16 years, prompting protests from students and graduates alike and causing many new graduates on starting salaries to struggle with their repayments.

However, the Office of National Statistics announced last week that the Retail Price Index (RPI) had fallen to 3.8%. Although the SLC has still to confirm this rate, it should be applied from September 1st.

Student loans become due for repayment in the April following the completion of the course. As HM Revenue and Customs collects information from employers at the end of each tax year in order to pass it on to the SLC, last year's graduates can soon expect their first loan statements.

Only those with salaries of more than £15,000 will have to start making repayments on their loan. Graduates will automatically have nine per cent deducted from their earnings which come above this threshold.

Regardless of whether or not their income exceeds the threshold, student loan holders are able to pay off the loan more quickly if the can afford to make voluntary payments on top of those collected through the tax system.

However, if a student owes more money on top of their student loan and also has outstanding credit card debt or other loans with higher interest rates, it is advisable to repay those first, before tackling student loan debt which is interest-free and only rises with inflation.

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