Lib Dems attack suggestions of interest on student loans
The Liberal Democrats have attacked suggestions that the Conservatives are considering introducing “real” interest rates on student loans.
It is suggested that rates of around two per cent would be added to the inflation interest marker on student loans.
In 2003 over 80 per cent of eligible students took out student loans, a dramatic rise from the 28 per cent take-up in 1991.
According to the Daily Telegraph, the Conservatives are considering increasing the interest rates on student loans in order to meet their pledge to abolish tuition fees.
The party, however, refused to comment on the supposed leak, saying only that it would be announcing its plans for higher education funding in September.
Currently, student loans are only subject to rate of inflation increases. This currently stands at 3.1 per cent, but is due to drop to 2.6 per cent in September. From 2006 universities will be able to charge maximum tuition fees of £3000 a year, with students to begin repayments when they reach an earnings threshold of £15,000.
It is very difficult to say what the overall financial impact on graduates if interest rates were introduced, owing to the large number of variables affecting student loan repayment including the rate of inflation, the individual graduate’s earning levels, and as such how long it will take for a loan to be repaid.
Currently, students pay around nine per cent of their income above the £10,000 threshold. This would mean a graduate with a £10,000 loan who was on a salary of £20,000 would pay £900 a year. However, because the current inflation rate charged by the Student Loan Company is 3.1 per cent, that graduate would have to pay £310 in interest, meaning that the actual amount paid off their original loan would be only £590.
And if the Conservatives’ suggested plans were implemented, and an additional two per cent interest were charged, that graduate would see the interest they paid rise to £510 a year, meaning that only £390 would actually be paid off the loan.
Whether not having to pay tuition fees would even out this difference is impossible to gauge at this stage without further details.
Speaking this afternoon, the Liberal Democrat’s education spokesman, Phil Willis, attacked the report, saying: “Michael Howard is now showing his true colours. Under his plans only the wealthy should apply to universities.
“Tory policies will see poorer students being priced out of universities by huge hikes in the cost of student loans.
“By far the most expensive element of attending university is maintenance costs. By introducing real term interest rates poor students will end up with astronomic levels of debt and many will be put off going to university all together.”
