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%.
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.