Public Loans

Posted: 10.09.06 in Blogging

I’ve just gone through my “accounts” – namely my Student Loan. In two years, I have borrowed from the State the princely sum of £7,415. This year, they have offered me £3,415 to borrow. Now here’s the catch.

While I was at school, right from when I visited Cambridge University in Year 9 to the last few days of Year 13, I was told that the Student Loan was the best loan around. You did not really pay interest, so it’s a free loan. Oh no it isn’t. First of all, ok, the loan is not interest free – that does not surprise you. The APR was 2.60% from 1st September 2004 to 31st August 2005, and it jumped to 3.20% from 1st September 2005 to 31st August 2006. It is linked to the rate of inflation. I have done a little research (very little), and from these two percentages, I reckon that the APR this year should be 2.4%. The Student Loans Company will have made a small profit out of me this year, because I am paying interest at a rate above the rate of inflation for much of the year. Secondly, as long as the government are aware of your existence, they are going to nibble at your salary. You can’t choose to pay the minimum sum each month – you pay what the government tells you pay – or rather what they take from you anyway. You can pay off a lump sum, or set up additional payments to pay it off quicker. But you can’t tell the government to take off a bit less because Christmas has been a bit extravagant this year.

Anyway, I’m going to take out more of this loan. I can afford to get away with it. That’s not to say I don’t recommend it to other people. Like all loans, if you can afford to avoid it, then all the better. But it is far better to take out the loan than to depend on bank loans and overdrafts and credit cards.

  1. weiran says:

    IIRC it goes with the Bank of England base-rate, which is related to inflation. It’s effectively inflation, and will be the lowest loan you’ll ever receive bar none.

    Either way, think of it this way: if you took that money and put it in an ISA, or even an average savings account, you’d make money.

    Thats free money.

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