Student Loans abolished

16 May 2009

This week our unelected Government pushed through legislation to abolish student loans. Unfortunately this doesn’t mean you don’t have to repay, it’s just becoming more of a tax rather than a loan! So what exactly have they done?

The terms and conditions that students signed up to stated “Interest is linked to the rate of inflation and is adjusted each year in line with the Retail Prices Index (RPI)”. So with RPI at –0.4% graduates expected their loans to be reduced by 0.4%, especially as the government always promised that the amount to repay would never go up in real terms.

But this new legislation allows the secretary of state to charge no interest, regardless of what the rate of inflation is. Clearly he would never do this when RPI is positive, but he now has the power to effectively increase the amount that has to be repaid when RPI is negative.

Whilst -0.4% isn’t a lot of deflation, what happens if it accelerates over the next year? Well graduates could suddenly find they have to repay back a lot more depending on what the government decides… this is normally referred to as taxation!

Even if inflation returns, the government has set a worrying precedent. They just need to pass a quick bit of legislation and they can charge what they like regardless of the level of inflation, although students have little to worry about as Labour stand about as much chance of winning the next election as I do of winning the lottery!