FFrom September, students from England and Wales will face higher interest rates on their student loans. The maximum interest you can be charged goes from 5.4% to 5.6%. Here’s what that means for students and graduates.
Does the increase affect me?
The rate hike affects anyone with a Plan 2 student loan. You are on Plan 2 if you are an English or Welsh student who started an undergraduate course in the UK after September 2012. This includes anyone who is studying or starting university this year, or who have graduated or left a course in the past few years. . Some EU students also have Plan 2 loans. This is to be checked if you are not sure.
Why are the prices increasing?
The benefit of plan 2 is reviewed each year. It is based on the Retail Price Index (RPI), which measures the cost of living in the UK. Whatever the RPI in March, it becomes the loan interest rate, plus up to 3%. This year’s RPI is 2.6%, down from 2.4% in the previous March. The interest rate on your loan reflects this increase, making the highest rate 5.6% from September (RPI + 3%).
It is not a huge increase. The biggest problem is that rates go up for students while other borrowers get more support. Plan 2 interest also eclipses the 1.1% charged on Plan 1 loans (Northern Irish and Scottish students, plus loans before 2012).
What does this mean for my loan balance?
Your balance will accumulate a little more interest. For example, a third year student who owes £ 30,000 will have his debt added to £ 1,680 this year. If the interest had remained at 5.4% it would have been £ 1,620.
Your outstanding balance may be different from this one. And your interest rate will decrease depending on whether you are studying or whether you have left your course. Either way, the rate hike won’t make a huge difference to your balance. And that makes even less of a difference in the cost of the loan.
Am i worse
Students will not lose their pocket because of the higher rates. You only start repaying when you quit your course and earn above an income threshold. You then pay back 9% of anything you earn above the threshold.
For Plan 2 students, the threshold is £ 26,575 (£ 27,295 as of April 2021). If you earn less than that, the payouts stop until you get back on the line. Interest rates have no impact on monthly repayments. How much you earn after your class dictates how much and when you pay back – that hasn’t changed.
Do I have to repay my loan early?
Don’t get pushed around by extra or advance payments. For some high income earners, prepayment of the loan could save money in the long run. But most students will never earn enough to pay off the full amount. Then, after 30 years, any remaining balance is erased and the loan canceled free of charge.
The government estimates that two out of three loans will be canceled (and this is a pre-pandemic prediction). If you don’t clear the entire balance, paying extra is likely to be a waste.
Should I reconsider my university studies?
If you are among the majority of people who don’t pay off their entire loan, the interest rate doesn’t affect the cost of the loan, so don’t let that put you off going to college or college. middle School.
What if Covid-19 affected my chances of employment?
If the worst happens, student loan repayments will be suspended if you lose your job or cannot find a job (unlike bank or private loans). You won’t lose out by having a student loan. While it’s natural to worry about strangers, things might not be as bad as you fear. And there is ways to improve your employment chances.
Can I get a lower interest rate?
There are no discounts. Nationality and residence rules determine whether you get a Plan 1 or Plan 2 loan, so you can’t shop around either. Plan 2 interest is charged in installments depending on your situation, so make sure your account is up to date so you only pay what you owe. The default rate is max if you don’t keep in touch with the Student Loans Company, so don’t disappear and keep responding.
Finally, keep in mind that the RPI can also drop. Interest on student loans in 2018-19 was 6.3%, so it can and does go both ways.