Student Loan interest rates double this month

06 August 2007
The Student Loans Company has announced that the interest on student borrowings will more than double from September, from 2.4% to 4.8% , in order to stay in line with inflation.

Each year in March, the SLC reviews the interest level in relation to the current inflation rate and sets the new interest rate accordingly. It happened this year that inflation had risen to a sixteen year high of 4.8%, which is now being reflected in the new rate.

Although the rise hasn’t come into effect until this month, it was set in the Spring, so is unaffected by the fact that the Retail Price Index (used to measure inflation) has already dropped to 3.8%. If this trend continues into next March then the rate will be adjusted accordingly, but in the meantime students and graduates have to contend with knowing their student debt is growing at a rapid rate.

For example, a graduate with £16,000 of debt with the Student Loans Company was seeing their loan rise by £384 per year on the previous rate of 2.4%, but the new rate – more than double – will mean annual interest of £768.

A spokesperson for the Student Loans Company told financial website thisismoney.co.uk: “This rate is unusually high. I don't think anyone would expect it to be 4.8% again and we expect it to reduce next year.” Additionally, there is Government policy in place to keep inflation low and the bank of England has already acted to try and bring it back down.

When interest rates and inflation fluctuate, everyone is affected in some way – savers can see an increase in their investments or see their money devalued, and homeowners experience changing mortgage rates.

Wes Streeting, Vice-president of the National Union of Students told the Guardian. “We are obviously extremely concerned about any increase in student debt. Graduates are in an extremely precarious position when they leave university; many work in low paid jobs and can't even begin to think about the property ladder, families and pensions.”

Collectively, students and graduates owe SLC more than £19 billion, so the 2.4% interest rise will cost them £500 million more in the next year alone.

Learn more about student money and the financial services available for students and graduates.