Education / Students urged to check their loan statements to avoid unpleasant surprise
PEOPLE paying back their student loans are being advised to keep a close eye on the interest they are being charged as this can be much higher than the monthly repayments deducted via PAYE.
In some cases, former students have found the amount of money they owe to the Student Loan Company (SLC) has shot up by thousands of pounds over the last two years with no warning received from the government about the interest rate hike.
Interest rates on Scottish student loans have increased in several stages to 6.25 per cent after having been as low as 1.1 per cent at the end of 2021.
The rate in England is higher still, ‘capped’ at 7.7 per cent, calculated at the inflation rate plus three per cent.
These increases have not been directly communicated to students as one would expect a letter from the bank when the terms and conditions of a personal loan or a mortgage changes.
Shetland MSP Beatrice Wishart said this was not good enough and needed to be changed.
“Students should be informed of interest rate changes for their student loans. It is not enough to expect people to check for any changes online,” she said.
“While the system of government-backed student financing is not like other forms of loans and debt, those who have signed agreements should be told of changes that apply to them.”
The drastic increases in the interest rates over the last two years mean that for a typical £20,000 loan the monthly cost in the form of interest being added to the overall amount owed has gone up sixfold from around £20 to about £120.
Meanwhile statutory repayment requirements have decreased after the Scottish Government increased the threshold for repayments being deducted from salaries via PAYE.
Currently former students pay nine per cent of what they earn above £27,660 annually. This threshold will increase to £31,395 from April this year.
This means that currently many former students owing £20,000 but earning less than £44,000 could find themselves caught up in a ‘debt trap’ when repayments cannot keep up with interests being charged. However, whatever is left of a student loan will be wiped off 30 years after leaving university.
Highlands and Islands MSP Emma Roddick said she has had representations about the issue from local people and is advising anybody who might be affected by this to urgently check their annual statements from the SLC.
“Inflation has been running out of control since Liz Truss came in and crashed the economy, so I would encourage all constituents to look at their various debts and repayments and the interest rates on these, including student loans,” she said.
“Inflation is such that repayment of student loans are not making as much a dent in the overall total as people may be expecting, so it is worth checking your yearly statement and making sure that things are running as you would expect.”
Interest rates for student loans are set by the UK department for education and not the Scottish Government.
Student loans in Scotland are provided through by SAAS – the Student Awards Agency Scotland – but repayments are administered through SLC which is an agency of the UK department for education.
A spokesperson for the SLC said it was not responsible for the setting of interest rates, repayment thresholds or policy.
The interest rate in Scotland is lower than in England due to an agreement in the devolved administrations settlement.
In a letter to Beatrice Wishart, minister for higher and further education Graeme Dey urged those finding themselves adding new debts through low repayment rates to consider additional voluntary contributions.
“It is […] important to clarify that borrowers can make voluntary repayment at any point if they are concerned about paying off their student loan,” he said.
“Borrowers can do this, as well as manage their student loan balance and keep up to date with the current terms and conditions through their Student Loans Company (SLC) online account.”
