View of the clock tower, also known as "Big Ben", located at the north end of the Palace of Westminster in London.
Student borrowers in the United Kingdom can expect higher student loan payments as a result of a 33 percent increase in the interest rates on their loans. Experts say the hike was worse than expected.
The increase resulted from a rise in inflation, and it will affect people who started college after 2012. This group was the first to pay fees of up to £9,000 a year, and many are expected to never be able to pay off their loans which expire after 30 years according to Telegraph, a U.K. news source.
The new interest rate could result in some students paying up to 6.1 percent on their loans. The interest accrues on these loans while students are in school earning their degrees, and grads begin paying off loans once they’re making at least £21,000 per year.
After graduation, the interest rate falls between RPI and RPI plus 3 percent which is determined by income. That means that those making £21,000 or less each year will get hit with an increase of 3.1 percent while people earning £41,000 or more will deal with a hike of 6.1 percent.
Like their American counterparts, UK students are suffering under the weight of massive student loan debt. Student loan debt increased by £12.6 billion, or 17 percent, to £86.2 billion in the past year, and about 70 percent of students who graduated last year are expected to never finish repaying their loans.
This recent increase means someone with £40,000 in loans needs to make a little over £48,000 annually to pay off the principal of the loan rather than just the interest, explaining the skepticism of some analysts.
While £86 billion is a far cry from the staggering $1.4 trillion debt toll in the United States, they are more comparable when taking into account each country's respective population. Keep in mind that about 70 percent of students in the United States rely on education loans, and about 70 percent of UK graduates are expected to never finish their repayment.
Interestingly enough, earlier in the year, The Student Loan Report covered a story about UK student borrowers, reflecting the desperation of the situation. It was found that a number of student borrowers were resorting to gambling as a method for paying off student loans instead of finding a job. Needless to say, gambling as an alternative to working for a steady source of income can be considered risky, especially with interest rate hike.
Adding to the issue, many students from the European Union are accused of taking advantage of the system according to The Student Loan Report. It was found that 25 percent of EU graduate who studied in the UK and borrower UK taxpayer dollars to fund their education neglect to make any payments on their debt. Some UK officials want to go as far as arresting defaulted foreign EU borrowers at the border to recover the losses. At any rate, the issue with foreign EU borrowers simply adds to the already caustic issue that is Uk student debt.
Image Copyright © Piotr Gaborek