Ministers move to block student loan repayments shrinking

More than three million graduates are missing out on a credit crunch-busting interest rate on their outstanding student loans that could have seen the Government help pay off their debts.

A rate of -0.4 per cent was due to be applied to their accounts on 1 September to match what inflation was in March, meaning students' debts would shrink even without repayments.

But ministers used a clause, originally intended to stop massive increases in the amount graduates have to pay, to prevent the interest rate going below zero.

The Government has denied the negative interest to the 3.26 million graduates who took out loans after September 1998 but it has no power to do that to graduates still paying off loans taken out before that date.

For those 390,000 people, their debt will get smaller as of today. A graduate who has £10,000 in outstanding debt now will owe £9,960 at this point next year without making any repayments.

More than 16,500 people have signed a petition on the Prime Minister's Number 10 website urging him to treat all graduates in the same way.

NUS Vice President Higher Education Aaron Porter said: "Whilst this is the best deal students and graduates could have expected in the context of a recession, post-1998 loan repayers will feel
a huge sense of injustice in comparison to their pre-1998 counterparts."

Martin Lewis of consumer website MoneySavingExpert.com said treating post-1998 graduates differently was "unfair".

A spokeswoman for the Department for Business, Innovation and Skills said: "This is public money — loans are already well subsidised.

"It would be difficult to justify to taxpayers a situation whereby students take out loans in 2009/10 and immediately start to have their balances reduced."