*UPDATE 18/05/09* From September 09 the interest rate will be 0% for post ’98 loans. For Pre ’98 loans the interest will be -0.4%. Find out more here.

Will student loan interest rate be negative next year?

Yes, if the Government follow their method for calculating interest rate for post (and Pre) 1998 loans. The rate as of March 2009 stands at 1.5% (post ’98). This is calculated, according to Student Loans Company website (the company who collects and distributes the money on behalf of the Government):

“Student loans are not like commercial loans. They are subsidised by Government and attract a low cost interest rate. This interest rate is based on the annual March Retail Price Index (RPI) or the highest base rate of a number of major banks plus 1%; whichever is lower.

To date, the RPI has always been the lower of the two. The reduced bank base rate plus 1% is now lower than the March 2008 RPI so we have presently adjusted the student loan rate to 1.5%.

However, if the bank base rate goes up again, then the interest will also go back up again – although it will not exceed this year’s rate of 3.8%.”

Pre 1998 loans do not get the same treatment and follow the March RPI:

“You will not be affected by the change in rate if you took your loan out for a course starting before September 1998. Your loan is repaid through a fixed term (Mortgage Style) repayment scheme. You will be charged interest, based on the RPI. As from 1st September 2008, the interest rate is 3.8%, and this rate will apply until 31st August 2009”

But, for 2009/2010 the RPI for March 09 is -0.4%, so will the Goverment keep to their word? Will student loans shrink? There has yet to be confirmation, I’m not the only one who isn’t confident. Martin Lewis of Money Saving Expert has raised awareness of the lack of confirmation and promised in his weekly email newsletter (well worth subscribing to) to launch a campaign if there is no confirmation.

So we await an announcement…

Fingers crossed,

Martyn.