Students face interest rate hike as inflation rises

12 April 2016

Students and graduates are likely to pay more interest on their student loans from September as inflation rises.

The retail prices index (RPI) rate of inflation rose to 1.6% in the year to March, up from 1.3% in the year to February, the Office for National Statistics (ONS) has announced today.

But March’s RPI is significant as it’s used to calculate how much interest students and graduates pay on their loans from that year’s September.

Different calculations are used for all three types of student loan; pre-1998 “mortgage style”, 1998-2012 “income-contingent style”, and post-2012, but all of these factor March’s RPI into the equation.

However, as this March’s RPI of 1.6% is higher than last March’s 0.9% figure, it’s likely student loan interest rates will rise from September, although the government doesn’t typically confirm the rates until the summer.


CPI also on the up

The ONS has also announced that the consumer prices index (CPI) rate of inflation rose to 0.5% in the year to March, up from 0.3% in the year to February.

It attributes the rise to an increase in airfares and clothing prices, although it adds that any further rise was held back by a fall in food prices and a smaller rise in petrol prices than a year ago.

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Commenting on today’s CPI inflation figure, Maike Currie, investment director for personal investing at Fidelity International, says: “While today’s figures sees UK inflation move further into positive territory, we remain far away from the Bank of England’s 2% target.”

She adds: “Today’s increase is unlikely to spur the Bank of England into considering raising interest rates on Thursday with widespread consensus that this week will see the 85th consecutive month that the bank keeps interest rates on hold at their emergency level of 0.5%.”

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