Interest rates on Student Loans to Rise
Millions of current and former university students in England and Wales will face a sharp increase in the interest rates on both their tuition and maintenance loans.
The rise in the interest rates is linked to inflation and is due to rise by a third from 4.6% to 6.1%. The increase is due to land in autumn 2017, alongside a boost in tuition fees from £9,000 to £9,250 for universities across England.
For those students who currently hold loans given in 2012, the rate is formed on the RPI (retail prices index) measure of inflation which was published in March this year. These figures showed an increase from 0.9% in 2015 to 1.6% in 2016 and 3.1% in 2017, which has more than tripled in 2 years.
The interest is charged while students are still attending university at the level of RPI plus 3% – which would mean charges on tuition fees and maintenance loans of 6.1%. The increase means student will continue to incur high rates of interest before they have even graduated.
Once the students leave university, the interest rates then become linked to their annual earnings which will rise to 6.1% for an income of £41,000 and higher – formed on RPI plus 3%.
For any students who attended university prior to 2012, there will be no changes to the loan interest rates.
The Intergenerational Foundation ‘Think Tank’ has highlighted that while the focus has been on the tuition fees, the amount that it costs students in repayments including interest charges will generally be much higher.
Before the rise in interest rates, students who were earning £41,000 per annum or more were expected to make repayments of £54,000 for tuition fees on average. This is excluding any maintenance loans needed for living and accommodation costs.
Selling off Student Loans
The government is also in the process of looking to sell the student loan book to financial markets; in February 2017 it announced that loans given to students in England from 2002 to 2006 will be up for sale, followed by the remaining pre 2012 loans.
In England in 2016 the amount of debt owed by students for tuition and maintenance loans was £76bn, compared to nearer £34bn in 2011 which shows a large rise in the outstanding debt.
A National Union of Students president said that rising levels of debt would cause a long financial shadow over young people’s lives.
Student Loans and Insolvency
Student Loans are not debts which will be extinguished by Bankruptcy. As such Student loans survive Bankruptcy. This relates to Bankruptcy orders made on or 1 September 2004.
The same applies to Individual Voluntary Arrangements. This was not always the case as Student Loans were capable of being included in IVA’s prior to 6 April 2010. On this date legislation was passed which provided that Student Loans paid after this date could not be included in IVA’s.
Student debts are not the only debts that cannot be included in Bankruptcies and IVA’s, other debts which cannot be included are:
- Matrimonial debts – monies owed to an ex-husband or wife which a court has decided should be paid
- Child support arrears
- Magistrates courts fines or fines for traffic violation
These debts need to be treated as priority debts and a provision needs to be made for them to be paid from the household expenditure.
If you find you are faced with problem debt such as credit cards, loans or tax arrears, there are a variety of ways to deal with these debts and the option very much depend on your circumstances. These could include:-
- Refinancing either through secured or unsecured loans or remortgaging
- Debt Management plans – as long as the term to clear your debt is reasonable
- Individual Voluntary Arrangements – aimed at higher levels of debts. Generally payments plans over 5 to 6 years but they can also be full and final style arrangements to settle your debts by a lump sum.
- Debt Relief Orders
If you find you need some help with budgeting or are worrying about debt, get in touch. There a range of solutions depending on whether you are salaried or self employed or you are a director or shareholder of a limited company. Should you enter into a debt solution with us, fees will apply. If you would like our team to call you, please use our contact form.
All debt solutions need to be carefully considered. IVA’s are formal solutions and failure to keep to the terms can result in your IVA failing and you could end up bankrupt.
There is also free debt help and advice available through a variety of debt charities. For more information, we recommend you visit www.moneyadviceservice.org.uk.
The Debt Advisor is Authorised and regulated by The Financial Conduct Authority (reg no: 606669).