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The easy reply to the query ‘do you pay interest on student loans in the UK?’ is sure.
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But student loans are in contrast to every other private loan product in that the rate of interest is tied to the speed of inflation. Added to that there are completely different charges relying on the kind of student loan you will have.
Confused? You needn’t be. We’re right here to interrupt it down for you.
There are two plans you may be on you probably have a student loan within the UK. Which plan you’re on is dependent upon once you began your larger training course.
Interest charges for Plan 1 student loans
You might be on Plan 1 in case you are:
- An English or Welsh student who began an undergraduate course wherever within the UK earlier than 1 September 2012.
- A Scottish or Northern Irish student who began a course on or after 1 September 1998.
If that is you, then the curiosity you’re charged in your student loan is principally stored consistent with inflation. The rate of interest for Plan 1 student loans is the Bank of England base price (at the moment 0.75%) plus 1%, or simply the speed of inflation, whichever is lowest.
The price for Plan 1 is normally set on 1 September annually, however it may possibly change in the course of the yr too.
Interest charges for Plan 2 student loans
You can have a Plan 2 student loan if:
- You began your course after 1 September 2012 in England or in Wales.
Plan 2 rates of interest are barely extra advanced. There is one rate of interest while you’re learning, and a special price when you graduate and start incomes a wage.
Firstly, while you’re learning (till the April after you will have graduated), your loan rate of interest is the retail value index (RPI) plus 3%. The RPI is a measure of inflation and may fluctuate in the course of the yr. However, the rate of interest for Plan 2 student loans is ready on 1 September annually and is predicated on the RPI of the earlier March. At the time of writing, the entire price is 5.4%, which incorporates the RPI at 2.4% and the extra 3%.
Once you attain the April after your commencement, your student loan rate of interest modifications. What you’re charged is dependent upon how a lot you earn.
|Annual revenue||Interest price|
|£25,725 or much less||RPI (at the moment 2.4%)|
|£25,725 to £46,305||RPI plus as much as 3%|
|Over £46,305||RPI plus 3%|
As you might have observed, the speed for the center revenue bracket is RPI plus ‘up to 3%’. This is as a result of the added proportion will rise consistent with your earnings. So in the event you earn in the course of this band (£36,015), your rate of interest can be RPI plus 1.5%.
If you’re curiosity in studying extra about student loans, then check out our different articles together with ‘When does my student loan get written off within the UK?‘ and ‘Should I repay my UK student loan proper now?‘.
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