The legislative provisions for Income Contingent Repayment student loans require that the rate of interest must: (i) be no higher than is necessary to maintain the value of the loan in real terms; and (ii) not exceed 1 per cent. above the highest of the base rates of a specified group of banks1 (the ‘low interest cap’). The interest rate is normally set every September to equal the retail prices index for the previous March—currently 3.8 per cent. Following the reduction in the Bank of England base rate by the Monetary Policy Committee on 4 December 2008, all the specified banks have reduced their base rates to 2 per cent. and the low interest cap comes into play. The Student Loans Company (SLC) have therefore reduced the interest rate for income contingent loans from 3.8 per cent. to 3 per cent. with effect from 5 December 2008 until further notice. The SLC have published this information on their website and in national newspapers.
The interest rate for loans taken out before 1998 (known as ‘mortgage style loans’) is not affected as these loans are governed by different legislation.
1 Bank of England; Bank of Scotland; Barclays Bank plc; Clydesdale Bank plc; Co-operative Bank plc; Courts and Co; HSBC Bank plc; Lloyds TSB Bank plc; Natwest Bank plc; the Royal Bank of Scotland plc.