Ahhh student loans. The infamous, ridiculous, never-gonna-pay-that-back debt that those of us who went to university in the UK have. As a result of the 2010 tuition fees hike, student loan debt is now so great that it sits at £86.2bn. And, if that isn't bad enough, millions of students and graduates across England and Wales are now facing a sharp rise in the interest they're paying on this debt.
At 16, you organise the rest of your life. It's daunting but everyone else is doing it so you go through the motions and make big decisions despite the fact that you've never even so much as paid your own council tax. You plan to go to sixth form, university and attain your perfect job hassle-free. You think it's going to a be a breeze.
What you don't plan for is the £40,000 plus of debt that you'll be in once you get the degree that you need before you can get that perfect job (and God forbid you have to repeat a year when you realise that huge life choice you made at 17 isn’t what you want to do anymore).
The interest rates on student loans are linked to inflation and, because of rising inflation, they are set to rise by approximately a third - from 4.6% to as much as 6.1%. How can this happen? Well, put simply your student loan's interest rate is linked to something called RPI (retail price index) which has risen since last year as a result of economic uncertainty and a pound weakened by Brexit.
A Department for Education spokesperson told The Debrief 'rates are set each year in September and are not confirmed before then.' This left us somewhat confused, RPI has increased and the interest is directly linked to RPI so are they suggesting that somehow student loans won't be affected?
The news is particularly galling because there's no doubt that successive governments over the last two decades have failed an entire generation of people. Not only do we face spiralling housing costs, stagnant wages and a rising cost of living, those of us who went to university have been saddled by more debt than any generation seeking further education in history.
To really hammer the nail into the millennial economic coffin, those who can afford to buy homes are currently benefiting from low borrowing costs. The Bank of England has kept the base rate of interest artificially low at 0.25 per cent since 2016, meaning that mortgages are cheaper than ever...if you're able to save/beg/borrow/steal a deposit that is.
Anyway, we digress...back to our student debt. In real (aka actual money) terms, that means if you're earning £21,000 or less, your loan will increase by 3.1pc. If you're earning more than £41,000, it will grow by 6.1pc. In short, get ready to not have as much disposable income as your used to. However, as we've reported before, the repayment threshold of £21,000 is set to remain the same.
An interest rate rise on this scale can only mean that many young people will never be able to pay off this debt. The last Conservative government trebled tuition fees and cut maintenance grants. Students in England and Wales now face the most expensive university education in the world according to the OECD.
Speaking to The Debrief, a spokesperson for the Department for Education said:
'Our student funding system is sustainable and fair, with affordable loan rates based on income. This means no individual will see their repayments rise as a result of interest rates increasing.'
'Sustainable and fair' - we'll just leave that there. The psychological impact of being in thousands of pounds worth of debt is not to be underestimated, nor is how this will influence those from low anmiddle-incomeme backgrounds when they're planning their future and making the decision of whether or not to go to university.
More and more interest is being focussed on the actual cost of our student loans. How many of us read the small print before we signed on the dotted line? A report, published in January of this year, by the Intergenerational Foundation, made the point that wile everyone was talking about the cost of the fees themselves, the amount if actually costs students and graduates in repayments and interest charges has, largely, been overlooked. The report was titled 'The Packhorse Generation' which anyone who's currently paying of student loans, renting and trying to keep their head above water financially will know is more than apt.
As things stand, the government are also trying to sell the studen loan book to a private company...they've tried this before and not had much luck. Could that be because any investor worth their salt knows nobody is ever paying this debt back?
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This article originally appeared on The Debrief.