Dear Colleagues
Following issue of Annual statements we have had feedback from various
students claiming that HEI advisors have told them that student loans are
"interest free".
This is not the case although Student loans are not commercial loans
interest is applied. The Government subsidises the actual cost of interest
on the loans, so they do not attract the same rates of interest charged if
as that from a bank or building society. However, to make sure that all
borrowers effectively pay back the same amount that they borrowed, the
Government has to keep the value of what is owed in line with the general
rate of inflation. This is done by working out the rate of inflation each
year as defined by the Retail Prices Index (RPI) and fixing the interest
charged to that rate. This means that however long it takes to repay loan,
in real terms no more will be paid back actually borrowed.
Furthermore to protect the interests of borrowers, there is a limit to the
rate of interest that can be charged. This will be equal to the bank base
rate plus 1%. As the bank base rate moves up and down this could mean that,
in certain circumstances, the rate of interest charged on student loans
could change during the year. If, for example, the base rate plus 1% fell
below the rate of interest being charged on student loans, the SLC would
reduce the student loan rate to match it. Normally, however, the RPI is
lower than the base rate plus 1%.
From the moment a loan is paid and until paid off in full, interest will be
charged on a daily basis. The interest will be 'compounded', that is, added
to the total amount owed, every month.
The RPI used is set annually before each new Academic Year and is based
upon the percentage difference between the retail prices all items index
published by the Office for National Statistics.
That is why some documentation will not quote the actual specific rate
applicable because at time of publishing this will not yet have been
calculated. Websites and other documentation however do actually explain
how interest is set and calculated.
Once the RPI has been set and agreed we do publish this information. For
example it is currently on the 'latest news' section on the SLC website.
Also on Saturday 9/8/03 SLC placed a Notice in the following Newspapers
advising of the interest rate change
The Guardian
The London Times
The Independent
The Glasgow Herald
The Scotsman
Sent on behalf
Stephen Hainey MICM
Student Support Liaison Manager
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