Credit Card Blog

You, like me (and millions of others), will probably either have, or have had a student loan.

Something I always wondered though was - how much is it costing me? Is it worth paying off quickly or should I just leave it and pay off the what it automatically deducted from my salary?

Not all that long ago I heard that the interest rate on my student loan had gone.. well, if like me, you’ve got a fair amount of debt, then this becomes a bit of a problem.. so I did a bit of research.

Currently for 2008 the interest rate is 4.8%

Ouch.

This is double the interest rate for 2007! If this rise continues then this is going to become an expensive debt. 4.8% of £10,000 is £480.. which is a pretty large amount of interest to be paying out. The good news though is that the interest rate is calculated annually and based on the March Retail Price Index. In March 2007 the RPI (Retail Price Index) was twice that from 2006. This is why the interest rate doubled. This year though (March just gone) the RPI dropped and so it is expected that the interest rate for student loans next year will be around 3.8% (this has today been confirmed)

Borrowing at 3.8% seems like an acceptable interest rate to me - but since this is tied to inflation, this could well change and increase next year, or the year after.

Whether you keep your loan or pay it off as soon as possible, remember, the original idea was to tie it to inflation, and the government has stated they do not make any money from it, so effectively it should be the cheapest form of borrowing. Don’t forget though that the rate (as it has done) can change quite substantially from year to year.

This entry was posted on Tuesday, August 12th, 2008 at 6:49 pm and is filed under Uncategorized.
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