The government will change the interest rate and it will always go up!

There has been A LOT of discourse on social media regarding this topic so let's lay this out there in plain English:

The answer to the question is yes it could go up but it could also go down

Your student loan is measured again the prevailing RPI (the retail price index)

In addition you will could pay  3% above the current RPI - this depends entirely on your salary - (read on for an explanation)

Interest rates can go up or down over the lifetime of the loan

WHAT DOES THIS MEAN?

If the RPI goes up you`ll pay a higher rate of interest - similarly if the RPI goes down, you'll pay less.

Example A)

At the time of writing  (July 2020)  the RPI was 0.1% so your interest rate will be 3.1% (if you earn above £47,385)

Example B)

In July 2019 the RPI was 2.1% so your interest rate was 5.1% (if you earn above £47,385)

BUT it isn't as straight forward as that- your repayment interest is calculated against your earning:


Earn under £26,575: Interest rate = RPI
Earn over £47,835: Interest rate = RPI + 3%
Earn from £26,576 to £47,835:

It rises gradually from RPI to RPI + 3%. For example, earn midway, so £37,205, and your rate'll be RPI + 1.5%


So you now get a sense that over the lifetime of the loan, the interest rate will fluctuate.

We will explore repayments in lot more detail in another chapter

Now there is a bit of an 'urban myth' that as the government sells the student loans to the private sector the rates will sky rocket- this simply isn't true. Indeed, many private investors see student debt as sub prime since they can't guarantee that all debtors will repay the loan hence why the governments sell off of student debt bond was pretty hopeless!


12 myths about student loans: fact or fiction?