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Posts from September 2007

Bloody Typical

Monday 10th September 2007

I’ve just come across a Facebook group called “Campaign Against 4.8% Student Loan Interest“.

Ok, so the interest rate on student loans is set to track the retail price index (RPI) at the end of the previous tax year. In March 2006, the RPI was 2.4%, so the interest rate on student loans was set at 2.4% from September 2006. The RPI in March 2007 was 4.8%, so thats what the new interest rate for student loans is from September 2007.

Basically, the RPI is an average measure of changes in the prices of goods, and is basically a measure of inflation. Think of it in terms of ice creams; a few years ago, a Flake 99 cost about 99p in most places. Now, it costs about £1.40. Thats because the price of goods has risen, so £1 buys less now than it did a few years ago. So really the interest rate of student loans is set so that you pay back the “real world” cost of your initial debt – i.e. if you borrowed 99p a few years ago for your ice cream, what you’d pay back now is ~£1.40. So the lender hasn’t actually made any money off you.

As an indicator, a typical rate of interest on a credit card is about 14% APR, about 7% APR for loans, about 8% for mortgages and about 18% AER for overdrafts. Student loans are effectively free debt. So we have absolutely no right to moan.

Bloody hell, students annoy me sometimes…

(N.b. I’m no economist, so most of this post could well be complete bollocks. Sorry if it is).

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