With the cost of living and inflation rising, there will soon be additional costs for those with a student loan. In the autumn a charge of up to 4.4% will be levied in line with the Retail Price Index (RPI). This could have an impact on the 3.3 million people who have an outstanding loan dating from 1998 and before.
With the General Election on the horizon, the Government isn’t giving any detail as to the exact size of the increase, but many graduates who will be hit by the change may wonder whether now is the time to pay off their loan.
Despite the likelihood that all loans will rise in cost this year, some financial experts suggest that it’s better for students to hold onto their loans. They say that loans remain a cheap form of long term debt. If a graduate has some cash spare and wants to pay off their debts, they might consider tackling their most expensive debts first (for example, credit card debt), before paying off the student loan.
Another solution is to save any extra cash in a high interest account. If the saver runs into financial difficulties later in life, they can use that account to pay those expenses, rather than having to take out a new, more expensive loan.
At the end of the day, the choice has to be down to the individual. The situation is obviously open to dramatic and maybe unexpected changes with the General Election just weeks away.
The Student Loans Company (SLC) is responsible for resetting the student loans interest rate on 1st September each year based on the RPI figures released in March. The SLC came in for criticism last year when it took over the payment of loans from local authorities. Students were left for weeks without receiving their loans.