Using RPI to set student loans will cost graduates up to £5,000 more, says TUC
The government's refusal to change the interest rate on student loans from the retail prices index (RPI) to the consumer prices index (CPI) - despite already doing so for key benefits, tax thresholds and public sector pensions - will leave graduates thousands of pounds deeper in debt, the TUC warns today (Tuesday).
The RPI inflation figure for March, published later today, is crucial for many graduates as it is used to set the interest rate on student loans from the following September.
While some graduates are currently paying back their student loans at 1.5 per cent due to historically low Bank of England interest rates, RPI is the most common method for calculating the interest rate on student loans - and the only method for those taking out loans before 1998.
A TUC analysis has found that a graduate with a student loan of £25,000 and on the average graduate salary will pay an extra £4,800 and take two years longer to pay off their student loan if it is uprated by RPI rather than CPI.
Graduates with higher levels of debt, lower earnings growth or broken career patterns, for example if they stop working full-time to look after children, will pay an even greater amount, says the TUC...
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