Students: Loans
The question
To ask the Secretary of State for Education, what assessment her Department has made of the potential impact of the student loan interest rate on costs to the public purse.
Answered by Josh MacAlister
Applying interest to the loans ensures that those who benefit financially from higher education (HE) contribute towards the cost of that HE. To ensure the real value of the loans over the repayment term, interest is linked to inflation. Interest increases the face value of the student loan book, but the impact on the fair value depends on complex assumptions about lifetime repayments.
In cashflow terms, neither outlay nor repayments are affected by a higher interest rate in the short term. Only when borrowers approach the end of their repayments would there be an increase in repayments through additional interest leading to extended repayment periods up to the maximum of 30 years for Plan 2 and 40 years for Plan 5 loans.
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