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Student Loan Interest Falls to 0%

May 14 2009 15:09
Ashley Brown
The interest rate for post-1998 student loans will fall to 0% from 1st September, with the Government wiggling out of a -0.4% rate.
MPs might be getting fat on taxpayers money, but there'll be none for you

Student loans taken out after 1998 will see their interest rate fall to 0% for the year from 1st September 2009, due to a decrease in the Retail Prices Index (RPI). However, the Government has used a "get-out" in the relevant legislation to avoid setting an interest rate of -0.4%, which would have seen loans pay themselves off.

The post-1998 rate has previously been set to the lowest of:

  • The base rate of major British banks
  • The RPI from the previous March, on a one year cycle starting in September

For September 2009 this would have seen the rate set to -0.4%, the March 2009 RPI. It was widely expected that the Government would weasel out of an interest-paying rate, which they have done by neglecting to set a rate at all. As a result of setting no rate, it becomes effectively 0%.

this is the best deal students and graduates could have expected
NUS President, Wes Streeting

Numbers aside, it means the Government has been happy to take money from students when the RPI was in its favour, but has avoided reducing the size of their loans now the tables have turned.

The NUS President, Wes Streeting, welcomed the 0% rate, saying

"In the context of a recession, this is the best deal students and graduates could have expected. NUS will continue to monitor the rate of interest on student loans, and make sure the Government is aware of students' concerns."

Until recently the rate had adopted the RPI from the previous March, the rate changing every September to reflect this. This had a severe effect previously, where the RPI doubled to nearly 5% in the space of a year. When the Bank of England base rate dropped below the March 2008 RPI, the Student Loans Company dropped the rate month-on-month to reflect this.

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Discussion about “Student Loan Interest Falls to 0%”

The comments below are unmoderated submissions by Live! readers. The Editor accepts no liability for their content, nor for any offence caused by them. Any complaints should be directed to the Editor.
May 14 2009 18:48

I can't believe they are cheerleading for the government by making it out to be a brilliant deal for us. The government decided to tie the rate to RPI and any sensible person would insist that they deal with the consequences.

May 14 2009 21:03

The Economist covered this well a few weeks back. The problem for the government is that the loans system as it stands transfers a lot of wealth from the taxpayer to the middle class. A negative interest rate would have highlighted this problem. Of course, this is the government's fault as they created the system. But it's no surprise that they tried to wiggle out of it, and it probably works better in the long run as we students will continue to enjoy loans at about a third the commercial rater, as opposed to a less generous scheme.

0% on the loan is good news anyhow.

May 14 2009 22:20

The NUS complaining that the 0% rate is 'too high' would be just as silly as the NUS campaigning for the abolition of tuition fees. It's good that we're at least getting this reduced rate, asking for more will achieve nothing. Nice to see that the NUS are becoming more pragmatic.

May 15 2009 11:15

Train fares are set to decrease with the negative RPI, why can't student loans?

May 15 2009 11:26

I nearly mentioned that in the article - the train companies aren't too keen on it though! Decreasing train fares doesn't cost the government anything really, the TOCs have to cover it.

6. Hmm.   
May 15 2009 11:35

"The problem for the government is that the loans system as it stands transfers a lot of wealth from the taxpayer to the middle class."

But people from lower-income families (1998-2006 at least) were given extra means-tested loans, including tuition fees where the parents were assessed as too poor to pay the fees- so graudates who came from lower-income families are in more debt.

Furthermore, repayments are linked to graduate earnings, so graduates on lower wages (or none) have more debt outstanding.

May 15 2009 13:18

"extra means-tested loans" along with extra means-tested grant.

..and remember it's only the offer of an extra loan.

May 15 2009 13:31

i still think the government are w***ers. i 'paid' ?1000 last year in interest on my loan. i hope someone burns down the houses of parliament, with them all in it. innit.

May 15 2009 13:39

You could have a national celebration named after you if you tried. Just like the last chap who tried to burn down the Houses of Parliament.

10. Hmm.   
May 15 2009 15:53

Grant? Not that I noticed (as I said, between 1998 and the introduction of top-up fees).

And as for the extra loan being "only an offer", again, what social background do you think makes one more able to turn down the offer? (other than those who lived at home and a few who had a payed job six nights a week).

But the point is that with the economy shrinking, a debt that stays fixed is growing in real terms- albeit less than one with positive interest- even though the loans were sold to students as interest-free in real terms.

May 20 2009 09:09
May 23 2009 23:12

The value of money can decrease even as the economy shrinks; recession does not imply deflation. This is the distinction between recession and depression. As it is, CPI is still positive, albeit weak.

I suspect that RPI is low because of the dramatic fall in interest rates, which has reduced mortgage costs year on year. I certainly haven't noticed my day-to-day costs shrinking. It is, I suppose, the nature of politically-controlled statistics that even with 'low' inflation and even 'deflation' prices still seem to keep rising.

I find it hard to see a good measure of inflation. CPI failed to factor in the massive housing inflation, leading to this whole debt-bubble in the first place with artificially low interest rates. Equally, including housing costs means that inflation measures start to be affected directly by interest rates, creating a bit of a feedback loop. It doesn't seem valid to ignore the effect of changes in the base rate to mortgage costs (e.g.) because it's still an important change in the economy. On balance CPI is probably the better measure, but more attention needs to be paid to potential bubbles not included in the index. The Bank of England remains a fairly technocratic and respectable independent institution, but giving it a broader remit to combat bubbles outside of CPI which will affect money-supply would seem a good idea.

13. C!   
May 25 2009 19:48

Not too long ago, the CPI was about half of the RPI. Hence, if the CPI were used then the interest added would have been substantially less. The government stated at the time that the interest would always be based on RPI and not CPI. See:

14. JJ   
May 26 2009 10:24

That response is quality:

"We believe it is right to use the same measure of inflation consistently across the years, and not to make changes simply because one measure is lower (or higher) at a particular point in time."

I'm writing so many letters this summer.

15. Adad   
Jul 10 2009 16:20

Transfers wealth TO the middle class !!! You must be joking. I earn ?80k, so pay 40% tax. Neither of my children - one a 5 year medical student - qualify for any concessions. My medical student daughter has no time to earn any meaningful income so I have to significantly top her loan up - and buy her a decent car to travel throughout Wales on placements. So, on top of my 40% tax I reckon I have paid about ?50k out to support my kids over the last 5 years, whilst watching Gordon Brown destroy my pension and spend billions on needless wars that see other people's kids needlessly blown to bits. Mind you, I'm not genuine middle class, coming from a poor, working class background with no inheritance and only my grammar school education to see me through. I sympathise with victoria on this, but on a less rabid note I have to say that RPI (or CPI) links are fraught with problems and that a smoothing device (such as a 3 year moving average) might give better results.

16. Flower   
Jul 13 2009 17:14

Lets break this down:

Pay, less tax & NI: ?38 400

Less 10K / year for kids : ?28 400

Less 250000 mortage over 30 years @ 10%: ~?20 000

That's about ?12 per hour after tax, mortgage and kids.

Why are you complaining?

17. erm ?   
Jul 13 2009 17:18

I'd be a bit p***ed off if I was only getting ?12 per hour from an ?80K salary.

I used to earn that much in my student holiday job!

18. Flower   
Jul 14 2009 07:52


People always seem to relate their earnings to other things, rather than their true value - "from an ?80K salary".

You're missing the point. (S)he's taking home ?20 000 pa in pocket money. That's a nice meal out for 2 with drinks every night of the year.

This is what I don't understand about people - they are never, ever, happy with what they have. 15 is looking at the approx 50% (s)he's paying in tax and deciding that (s)he is more important than the entirety of government (note how tax and take home are equal - yet obviously not happy with paying the tax).


(P.S. That's a question of why do you think you don't need the armed services, police, fire, binmen, NHS, education, social security, governance, civil service, universities, EPSRC (etc.) rather than what has the government done wrong today).

19. hmm.   
Jul 14 2009 09:32

"Why do you think you don't need...universities"

No, it's a question of why are they paying twice for the same thing, through taxes AND fees/supporting their own kids- a position shared by people on a lot less than 80K who find it a lot harder to pay fees and maintenance top-ups.

20. Flower   
Jul 14 2009 14:00

Oh that's easy - taxes aren't high enough.

21. Hmm.   
Jul 14 2009 14:09

"Oh that's easy - taxes aren't high enough"

Or the distribution of tax income is wrong, or inefficient. Or they are trying to fund too many students.

Jul 15 2009 14:37

Tax should be 100% of income. Food should be rationed out equally to everyone so they can live. Entertainment...well - isn't that what a job is ?

23. Regan   
Jul 16 2009 22:41

God damn communist hippies!

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