Student Loan Repayment: A guide to student loan interest rates on Student Loans Company (SLC) loans. Why SLC loans are cheaper than private student loans.
For anyone already in receipt of a Student Loans Company student loan or considering taking out an SLC student loan, one of the key questions to ask is “what is the rate of interest to be paid back on an SLC student loan?”
Student Loans: SLC Loans Cheaper than Private Student Loans
Student Loans Company student loans are designed to be a cost effective way for students to obtain finance for their University education. The Student Loans Company is a public sector organisation designed to facilitate lending with social rather than commercial objectives at heart. As such, SLC loans are usually a cheaper form of finance than is the case with private student loans, provided by financial institutions.
For those considering the cost of an SLC student loan, the loans are repaid with an interest charge calculated on two principals. Interest rates are charged at the lower of either, the rate of inflation or the Bank of England base rate plus one percent. At present this means that interest is currently being charged at 1.5% or the Bank of England base rate (0.5% at the time of writing) plus 1%.
Such a mechanism sees that those who use the SLC student loans system only ever pay back the amount of money initially borrowed in real terms. As such, the Student Loans Company does not actually make a profit from interest charges levied.
Student Finance: The Benefits of an SLC Student Loan
In addition to the fact that SLC student loans are cheaper than most private student loans, there are also a number of other advantages. In the first instance, a student loan will have to be paid back until the borrower reaches a certain earning threshold, which is presently £15,000.
Secondly, debt collection has a unique status in that, unless one is self employed or resident overseas, repayment takes place through the PAYE tax system. In short, one never has to worry about organising repayments, since any repayments will automatically be deducted through the taxation system.
In addition, if ones income falls below the threshold level, then repayments will cease to be collected by HMRC until one’s income again reaches the required threshold. There are no penalties incurred for cessation of repayments, based upon a fall in income, only the consideration that the loan will in such cases take longer to repay.
In summary the cost of an SLC student loan and the unique terms and conditions associated with the form of student finance mean that taking out an SLC student loan can be a much more attractive option than that of a private student loan.