For the first time in 10 years, UK’s interest rates saw an increase yesterday. What would this mean for students?
The last time interest rates were increased the first iPhone had just been released and Britney was beating a car with an umbrella. The official bank lending rate has raised from 0.25% to 0.5%, it seems small, but this is a big deal.
Mark Carney, Governor of the Bank of England says that it may rise twice more over the next three years, as reported by the BBC.
A report in The Independent earlier this year saw a sharp increase in inflation, and what does higher inflation mean for the under 30s? As reported by The Voice of London News, the reality is overwhelming.
Higher inflation would cause a jump in student loan interest rates- to more than 24 times than that of the Bank of England base rate- according to The Independent. Millions of students and new graduates in England and Wales will be forced to repay hundreds of pounds extra in student loan fees thanks to the higher interest rates.
Considering student loans are meant as direct government support for tertiary level students, the debt they will face as a result seems rather ironic.
Image by: Joshua Hornsey
According to Parliament UK, currently more than £13 billion is loaned to students each year. Their research foresees a rapid growth of this figure over the next few years- and the Government expects the value of outstanding loans to reach over £100 billion in 2018.
The student loan’s company UK states that, for academic year 2015/16, a total of 984,600 students rely on maintenance loans, which total to a whopping £3.94 billion compared to the 963,100 students taking up the loans from the previous year. View the spreadsheet yourself, here: https://www.slc.co.uk/media/8445/slcsfr052016.xlsx
With the majority of students dependant on student loans to survive, the higher interest rates (which, to many experts, is only the beginning of a disastrous hike) would be a cause for concern.
“The average student now graduates with £44,000 debt”
Anastasia, 21, a student from University of Westminster, says that she isn’t “too fussed” over the higher interest rates: “You only pay back once you earn £21,000 a year, and you will only have to pay a small amount each month. I think it is still very feasible and beneficial for people who can’t afford it (tuition fees).”
Jake Butler, an expert at money advice website Save the Student, told the Independent: “I was expecting an increase to student loan interest this year, but this is worse than expected. It really demonstrates that the interest on loans under the new system is far too high and should be reassessed.”
This rise will also make it much more difficult for young people to own their own property- nearly impossible, even.
Students paying annual fees more than £9000 would graduate with an estimated £44,000 debt, compared to the average £16,200 student loan debt suffered by students who graduated before tuition fees tripled from £3000.
Economic correspondents at the Financial Times alleges that this puts current and future students at an even worse position especially when it comes to “getting on to the housing ladder”.
BBC reported that the panel in charge of setting interest rates, the Monetary Policy Committee (MPC), says that the increase in interest rates was due to low unemployment, rising inflation and stronger global economic growth.
Words: Ainaa Mashraq Sub: Michael Ward