Students: Loans

(asked on 18th November 2020) - View Source

Question to the Department for Education:

To ask the Secretary of State for Education, pursuant to the Answer of 13 November 2020 to Question 91878 on Students: Loans, what recent assessment he has made of the equity of charging interest on Plan 1 student loans during maternity leave.


Answered by
Michelle Donelan Portrait
Michelle Donelan
Secretary of State for Science, Innovation and Technology
This question was answered on 25th November 2020

There has been no recent assessment made on the equity of charging interest on Plan 1 student loans during maternity leave.

Student loans have much more favourable terms than commercial loans. Repayments are linked to income, not to interest, or the amount borrowed. Borrowers earning less than the annual repayment threshold of £19,390 for Plan 1 loans repay nothing at all. The interest rate on Plan 1 (pre-2012) income-contingent repayment student loans is the Retail Price Index (currently 2.6%), or the Bank Base Rate +1%, whichever is lower. The current interest rate of 1.1% will remain in place until such time as the Bank Base Rate changes.

The current system protects borrowers, including people on maternity and other forms of parental leave, if they see a reduction in their income. Repayments are made based on a borrower’s monthly or weekly income, not the interest rate or amount borrowed, and no repayments are made for earnings below the repayment thresholds.

Loans are written off after a specified time, with no detriment to the borrower. There are no commercial loans that offer this level of borrower protection. Student loans are subsidised by the taxpayer; the government does not make a profit from the loan scheme.

Reticulating Splines