End to Interest-Free Student Loans
|Published: 26th August 2010 14:16|
Most will pay 1.5%, while 400,000 face 4.4% interest
Millions of borrowers with a student loan will no longer pay zero interest from next Wednesday (Sept 1). The interest rate will jump from 0% to 1.5% for 3.3 million students and graduates, it was confirmed today, while those who took out loans before 1998 will see rates increase from MINUS 0.4% to 4.4%.
The hike to 1.5% restores the link to the lower of the base rate + 1%, or last March's RPI inflation (4.4%). Last year, the Government used a technicality to break this bond, and created a new clause preventing 1998-onward loans from matching deflation.
Alana Fitzpatrick, MoneySavingExpert.com money analyst, says:
"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. In other words, if you borrowed enough to buy a trolley worth 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."