There’s no need to inflate our loans
Students are indebted enough without unfair hikes in interest rates.
Inflation has a lot to account for. My parents delight in their tales of ye olde days pre-decimalisation, when a loaf of bread came in at just under a penny, and a pint of bitter in the SU cost a paltry one shilling and ten pence. In terms of decimal currency, this popular student beverage would have cost roughly nine pence. It doesn’t take an Economics student to see that prices have gone up since the sixties and are, in fact, in a constant state of fluctuation, affected by supply and demand. Interest rates are set relative to levels of inflation and this relates directly to an under-publicised financial predicament that we students find ourselves in.
From September 1 2007, the Student Loans Company (SLC) readjusted the rates determining how much interest we will have to pay back once we have left university and are earning the threshold income of £15,000 per year before tax. From a rate of 2.4% APR for the 2006-7 university year, interest rates on all loans taken out from the SLC have doubled to reach 4.8% APR, the highest level since the early 1990s.
For those of you who have taken the risk and acquired a credit card – and actually read the small print – you might be aware that, in terms of interest rates, 4.8% doesn’t appear to be that much. 14.9% appears to be the current height of credit card interest rates, but with Lloyds TSB offering student credit cards at 19.9% APR, taking out a loan from the SLC is certainly the cheapest method of funding your way through university – at least, without the input of exceedingly benevolent parents.
Still, the raise – which will affect an estimated nine tenths of the student population – has caused a great deal of anger, mostly expressed through the medium of Facebook, where it has inspired a thirteen thousand strong group entitled ‘The Student Loans Rip-off’. If it wasn’t for this group, I expect that few students would be aware of changes that will have a serious financial effect upon them. Despite SLC’s declaration on letters informing us about our financial support entitlement for the coming university year that “interest… is subject to change each year. We will advise you of any changes”, I have yet to hear anything from the company. Students are in enough debt as it stands – collectively we owe around £19 billion to the SLC – so it would be nice if they could inform us when they hike up the interest rates.
Despite this negligence, few seem to understand the reasons behind these changes. For those better informed, there is an additional element: SLC’s choice of inflation indicator, the Retail Prices Index (RPI). A calculation which considers the average measure of changes in prices of goods and services, including mortgage cost, is an unfair method of setting inflation for students. It also reached a 16-year high in March of this year, when the RPI was calculated. Alternatives, such as the Customer Prices Index (CPI) or the RPI-X which do not include these in their calculations, could have been used and instead preventing loan interest rates from rising as dramatically as they have done.
All calculations and tricky maths aside, what really takes the biscuit in this scenario is that the SLC is an entirely governmentally funded, Non-Departmental Public Body (NDPB) which administers loans on behalf of the government. Firstly, the government should ensure that the SLC is using the most up-to-date and fairest method to calculate inflation and thus charge us. If they’re so determined to widen access to university, they should help students avoid incurring more debt than is absolutely necessary. Secondly, the increased interest rates apply to tuition fee loans as well, another government initiative which adds to the impression we’ll be paying back the SLC well into our dotage. The SLC ought to review their methods of inflation calculations to ensure that this doesn’t happen again. Let’s make sure that the numbers really do add up next time.
