Inflation measure that hits young

STUDENTS are being hit with an outdated inflation measure which sets their loan interest rates.

Most government data uses the Consumer Prices Index (CPI) – currently 2.6 per cent – which is the official measure of inflation in the UK. However, ministers peg student loans to the Retail Prices Index (RPI) measure of inflation, which has not been used by the Bank of England to set interest rates since 2003.

The amount charged on student loans is updated each September and based on the RPI inflation rate from the March of the same year.

The RPI for March 2017 was 3.1 per cent – up from 1.6 per cent in March 2016. Graduates from English universities do not start paying back their loans until they are earning at least £21,000 a year, but interest is charged on their loans from the day they are taken out.

Students who took out a loan after 2012 – when the Government made drastic Higher Education changes – and are still studying are charged a staggering 6.1 per cent, which is the RPI rate for this March plus 3 per cent.

Those who have now graduated on that loan system will be charged up to 6.1 per cent interest, up from 4.6 per cent last September.

Graduates earning under £21,000 will be charged the RPI rate of 3.1 per cent only.

This rises on a sliding scale up to RPI plus 3 per cent for those on £41,000 or more. Students were originally told the £21,000 threshold would be ‘uprated annually in line with earnings’. But in 2015 ministers froze it until 2020.