To ask the Secretary of State for Innovation, Universities and Skills for what reasons the annual percentage interest rate on student loans increased from 2.4 per cent. to 4.8 per cent. on 1 September 2007. (175643)

Student loans have very different features to commercial loans. Graduates with income contingent loans (ICL) only repay once they are in work and only when their annual income reaches £15,000. Interest is charged at the rate of inflation, so students only pay back in real terms the amount they originally borrowed.

This is achieved by linking the interest rate for student loans to the annual rate of inflation as defined by the retail prices index (RPI). The interest rate is recalculated each year at the beginning of September using the RPI figure from the previous March. This methodology ensures that over time the student loan interest rate will be equivalent to the rate of inflation but with a time lag.

For the academic year 2007/08, the interest rate is set at the rate for RPI for the year to March 2007—4.8 per cent. Although the underlying RPI rate has fallen since March, and is now below the 2007/08 student loan interest rate, this works both ways. In other years, the time-lag will benefit borrowers, as it did in 2006/07. Over time, peaks and troughs even out, and borrowers repay no more in real terms than they borrow.

To ask the Secretary of State for Innovation, Universities and Skills what the resource cost is expected to be of (a) fee loans and (b) maintenance loans in each year from 2008-09 to 2010-11. (183947)

Provision for the resource cost of fee and maintenance loans for English domiciled HE students in RAB terms¹ is shown in the following table. The RAB charge applied for fee loans is 33 per cent. and for maintenance loans is 21 per cent.²

¹ The RAB charge is an estimate of the percentage of the face value of loans issued in that year which reflects the resource cost over the expected life of the loan to the Government of making the loans.

² Figures exclude the impact of the repayment holiday.