The Palace of Westminster located in the United Kingdom.
This isn’t the news that student loan borrowers in the UK want to hear: interest rates on their student loans are set to increase by a whopping 33 percent (relatively speaking, not literally).
The rate hike is due to rising inflation and will apply to any student enrolled at university after 2012—that means all current students will be affected.
In the UK, student loan interest falls between RPI (an index of inflation) and RPI plus 3 percent, depending on a borrower’s income. The current numbers put RPI at 3.1 percent, which translates to grads being forced to pay up to 6.1 percent interest on their student loans—that’s 24 times the Bank of England base rate. And to add more perspective, the average interest rate on American student loans in the United States is 3.76 percent.
And even those in the UK who don’t make that much money are going to feel the burden; for instance, borrowers earning below the minimum payment threshold of £21,000 accruing interest at a rate of 3.1 percent.
Like their American student counterparts, UK borrowers are dealing with massive student loan debt, which increased £12.6 billion, or 17 percent, to £86.2 billion in the past year alone. And about 70 percent of students who graduated last year are expected to never finish repaying their loans.
Jake Butler from Save the Student agrees, saying that the new hike will simply add to the amount of debt the government will never get back. In the UK, student loan debt is wiped clean after 30 years, and Butler believes the majority of borrowers will not be able to pay off their debts before then.
In the end, graduates will still be paying down this debt for decades, which can affect their ability to start their own business, buy a house, get married and have children.
Image Copyright © David Litton