Campus Unease and Government Greed
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Controversy is brewing about Government plans to release information about student loan debt to credit rating agencies at the same time as the interest rate on such loans has doubled.
While students are told that interest rates are kept in line with inflation when taking out loans, many are unaware that the rate is set according to the RPI inflation measure rather than the newer, and lower, official CPI measure.
This has led to the rate on loans doubling for the next year to 4.8%, from 2.4% the previous year, due to a spike in inflation.
Potential first-time buyers already struggling to cope with high house prices and mortgage lenders tightening their criteria have been warned that missed payments being recorded on their credit files could cause problems. While missed payments on student loans will show up as a black mark, positive details on those who have made all their payments on time will not be recorded.
The Government has not yet confirmed when it will begin releasing information about student loan payments to credit agencies, but the information will begin to show up this year.
Protests have been made against the change, with a group set up on networking site Facebook attracting more than 26,000 members. Most complaints have called for student loans to track the official CPI measure rather than RPI.
Higher education minister Bill Rammell was criticised after defending the loan interest stating that repayments would not change as they are collected as a percentage of salary above £15,000. Critics pointed out that this was encouraging poor personal financial management as the repayments may not change but the interest rate charged on the outstanding balance had doubled.
While the Government claims that it is simply trying to create a level playing field for student loans, student groups point out that using the higher calculation of inflation is simply a bare faced money grabbing scam.
The funding of higher education students is an interesting case in the personal loans market. The move from grants to loans was meant to shift the system away from state handouts and towards a more market orientated approach. These latest moves, however, both fail to make the system more equitable and will put students off from higher education. At a time when the Government wants to increase the percentage of students continuing to higher education to 50% this is at best muddled policy making and at worse counter-productive.
