Millions of borrowers with a student loan will no longer pay zero interest from next Wednesday (Sept 1), says self-styled “consumer revenge” website
MoneySavingExpert.com.
The interest rate will jump from zero per cent to 1.5 per cent for 3.3 million students and graduates, while those who took out loans before 1998 will see rates increase from MINUS 0.4 per cent to 4.4 per cent.
The hike to 1.5 per cent restores the link to the lower of the base rate + 1 per cent, or last March's RPI inflation (4.4 per cent). Last year, the Government used a technicality to break this bond, and created a new clause preventing 1998-onward loans from matching deflation.
Assuming a constant debt of £10,000, students will pay £150 a year on that rate, although MoneySavingExpert.com says the rate could jump if the Bank of England base rate rises. This is in contrast to the zero per cent interest such borrowers currently pay.
"Due to the inflation link, student loans are the cheapest form of borrowing you'll get - there's no real cost as the most interest you'll pay matches the rate of inflation,” said Alana Fitzpatrick, money analyst at MoneySavingExpert.com.
“In other words, if you borrowed enough to buy a trolley full of food ten years ago, then the amount you repay should be the value of the same trolley of food now.
"This means if you have an outstanding student loan, as well as more expensive debts from banks or credit cards, it's much cheaper to pay the latter off first."
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