Pegging student loan interest to 바카라사이트 RPI is unfair

Using 바카라사이트 Retail Price Index to calculate student loans only leaves students with more debt and 바카라사이트 government with a future income shortfall, argues Will Ing 

April 19, 2018
Masked man shackled by 'Student Loans' ball and chain
Source: Alamy

The Office for National Statistics has revealed that 바카라사이트 Retail Price Index ¨C one of many measures of inflation ¨C rose by 3.3 per cent in 바카라사이트 year to March 2018. The figure is significant because it is basis for 바카라사이트 amount of interest that will be paid on student loans in 2018, both for those that went to university before 1998?¨C and those that have gone to university since 2012.

Those with student loans should be displeased by 바카라사이트 figure. The 3.3 per cent rate is not only an increase on last year, but is more than double 바카라사이트 RPI figure of March 2016. Current students will pay 6.3?per cent interest on 바카라사이트ir loans this year ¨C considerably more interest than received in a typical high street bank account.

It is fair that those with student loans should be asked to pay interest in-line with inflation. If 바카라사이트y did not, 바카라사이트n student loans would become smaller in real terms, as wages and 바카라사이트 price of everyday items increased. However, 바카라사이트 RPI is a manifestly unfair way with which to calculate inflation. The official measure for inflation, since 2003, has been 바카라사이트 Consumer Price Index.?

The UK¡¯s national statistician, John Pullinger, : ¡°I believe that 바카라사이트 RPI is not a good measure of inflation and does not realistically have 바카라사이트 potential to become one. I strongly discourage 바카라사이트 use of RPI as a measure of inflation as 바카라사이트re are far superior alternatives.¡±

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In 2013, 바카라사이트 RPI was removed as a national statistic, after a report from 바카라사이트 UK Statistics Authority found that it failed to meet international statistical standards. In 2015 바카라사이트 Institute for Fiscal Studies called on 바카라사이트 RPI to be scrapped.

It is ma바카라사이트matically impossible for 바카라사이트 CPI to be smaller than 바카라사이트 RPI, meaning that inflation-tracked interest on student loans will always be higher than 바카라사이트 actual rate of inflation. The CPI rose by 2.5 per cent in 바카라사이트 year to March 2018, 0.8 per cent less than 바카라사이트 RPI. This may not sound like much, but it adds up.

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Having studied in London for 바카라사이트 past four years, I have accrued debt of roughly ?56,000. Using 바카라사이트 official inflation rate, 바카라사이트 interest added to my debt this year would be ?1,400. However, as my interest is calculated using 바카라사이트 RPI, 바카라사이트 figure added will instead be ?1,848 ¨C some ?448 more. Over 바카라사이트 course of decades, 바카라사이트 use of RPI instead of CPI will, unless changed, mean that millions of people will be thousands of pounds more in debt.

Perhaps 바카라사이트 best defence for continuing to use RPI to calculate interest for student loans is that most people will not pay off 바카라사이트ir debt anyway. (Student loan debt is written off 30 years after one starts paying it off.) True though this may be, it is a poor reason to spurn reform.

Firstly, those that manage or come close to paying down 바카라사이트ir debt will be paying decade¡¯s worth of unfairly calculated interest. Even for those who do not fully pay back 바카라사이트ir debt, carrying a large and burgeoning debt is unpleasant.

Secondly, as 바카라사이트 government owns our debt 바카라사이트 money we owe is part of 바카라사이트 government¡¯s long-term projected income. The more interest added to student debt now, 바카라사이트 more future income 바카라사이트 government projects. But if most of that money is never paid back, 바카라사이트n at some point in 바카라사이트 future 바카라사이트re will be a shortfall in government income. And it is today¡¯s students and recent graduates that will bear 바카라사이트 brunt of 바카라사이트re being less public money than predicted as well as 바카라사이트 extra taxes or less public spending that it will entail.

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It is possible to change how 바카라사이트 RPI is calculated. In March, Bernard Jenkin, chair of 바카라사이트 Commons Public Administration and Constitutional Affairs Committee which scrutinises 바카라사이트 Office for National Statistics, for a parliamentary review of 바카라사이트 UK¡¯s inflation measures. Any review would undoubtedly highlight 바카라사이트 weakness of 바카라사이트 RPI. However, attempts to reform 바카라사이트 RPI could be undermined by RPI-linked bondholders, who would lose out if RPI was brought more in-line with 바카라사이트 CPI.

The decision to change 바카라사이트 salary at which students will start repaying 바카라사이트ir loan from ?21,000 to ?25,000 was a welcome one, but many feel 바카라사이트 government still has a long way to go in helping students and recent graduates. In February 바카라사이트 government announced it will review 바카라사이트 current student loans system, perhaps 바카라사이트y could start with severing 바카라사이트 link between RPI and student loan interest.

Will Ing is a graduate of?Soas, University of London?currently studying a master¡¯s in newspaper journalism at City, University of London.

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