This
article talks about how student loans interest rates are rising due to a rise
in inflation in England, Wales, and Northern Ireland upwards of 6.3%, following
an increase in the Retail Price Index measure of Inflation. The interest rate
will be charged this autumn from when they start studying until April after
they graduate. The rise will not change individuals’ monthly repayments, as
these are based on how much they earn, as mentioned by the department for education. The National Union of Students mentions that while the rise is small, it adds psychologically to the burden of debt for young college students. Also, as mentioned by Education Editor Branwen Jeffreys, it is the middle income earners who are to feel the long-impact of high interest rates. He mentions that "if your earnings are low as a graduate, a larger part of your loan is likely to be written off by the government at the end of 30 years".
It would be interesting to see how the percentage of student loans demanded would be affected in the short run, along with the change in the percentage of college enrollment. It would be interesting to see whether the policy of higher college loan rates would be altered in response to a drop in college enrollment since the opportunity cost of holding money as an asset decreases when rates on student loans are so high.
http://www.bbc.com/news/education-43810163
2 comments:
The article mentions that the way that student loans have been managed is not right and that they end up harming the student that have huge amounts of debt after college. The fact that they are making the rates higher will not help them, because the debt will grow even larger, this might end up discouraging students from going to college. This would cause them to be less productive which would affect the economy in the long run. If you have people with less production, the economy is not going to grow as much, they should think about this when altering the interest rates for student loans.
I do wonder what the effect of a higher interest rate will have on the demand for college loans. Although demand might decrease, how much will it decrease is a serious question. People will have to weigh the opportunity cost and I think it depends on the individuals discount rate for future earnings and income.
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