Student Loans – Investment or Millstone?
Now that the RPI figure for March has been set at 3.1% it means that student loans from September 17 will be 6.1%, an increase from 4.6% and now higher than the average standard variable mortgage rate of just under 5%.
From a standing start where student loans were interest free, this has crept up on many unsuspecting parents (and students!) . Linking the debt to RPI has scary consequences if inflation increases further as well as the compounding effect of interest on interest. A student accumulating a £50,000 debt during a 3 year course, with a starting salary of £30,000 that grows at 5% a year would end up paying over twice the initial loan over the 30 year repayment term, after which, any remaining balance would be wiped out.
Depending on circumstances, financial planning can offer cost efficient alternatives.
In any case, it does focus the mind on whether University is a good investment or future millstone.