Student Debt: Some loans help to repay themselves
by: Jim Grayson
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Word Count: 350
Students who took out student loans before September 1998 are subject to rules that link the interest paid on student loans to the retail price index (RPI) rates. The economy is currently going through a period of deflation, and the RPI during the last period on which student loans are assessed was -0.4%, hence the negative interest rates.
Students who took out student loans after September 1998, and there are about 2.5 million of them, are not so lucky. Their loans were issued under different rules and the interest charged to them is only partially linked to the RPI. It is also subject to discretionary measures determined by the secretary of state. On this occasion the secretary of state determined that a negative interest rate would put too much pressure on the public purse and so decreed that the interest rate would be fixed at 0% for the next year.
Students must repay their loans at a rate of 9% of the amount by which their gross income exceeds £15,000.
If student loans were all the young graduates needed to worry about then this would be all good news, however student loans only accounts for a proportion of student indebtedness. On average students leave university with total debts of around £18,000. Much of this is in the form of bank overdrafts and credit card debts.
Graduating from university and starting one's first job is a difficult time for anyone, and doing this with the additional burden of financial worries can be quite concerning. Often past students will find that banks, initially generous with their offerings of student overdrafts at low interest rates, are now calling in these overdrafts or are increasing interest payments on them to punishingly high levels.
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