Released: 21.05.09

From MoneySavingExpert.com

Last week, an announcement was snuck out meaning millions of graduates with outstanding student loans will soon pay no interest, though the change should've been bigger!

• Pre-1998 loan rate drops to -0.4%. From Sept, the 340,000 graduates with these loans will see the rate drop from 3.8% to -0.4% meaning loans'll actually shrink over the year.
• '98-onward loans dropped to 0%. The 2.5m with loans who started uni later will see their interest drop from 1.5% to 0% from Sept.
• It's all about deflation. The student loan rate changes each year in Sept based on the RPI inflation rate in the prior March. This March's inflation was -0.4% (deflation) so the interest rate should drop to that for ALL loans, yet the government has used a technicality to prevent 98-onward loans matching deflation.
• This breaks a binding principle. Student loans have always been set using inflation, so there's no "real cost" to them. While 0% loans sound cheap, it means former students' purchasing power is being eroded, as with deflation (prices dropping) loans costs should be shrinking too.

This is the one thing that wasn't supposed to happen, while currently students with loans of £10,000 will only be £40 a year out of pocket, the worry is once any principle is broken it's very difficult to fix, and deflation's now -1.2%. There's been a petition at No. 10 started to ask the Prime Minister to rethink while there's still time.