18/04/2017 08:22 BST | Updated 18/04/2017 08:22 BST

The Five Most Exploitative Things About Student Loans

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Student loans have quickly become the most exploitative, unethical and deceitful loan systems on the market.

Uncapped to reasonable inflation they bleed those questing for higher education dry and profiteer off of hapless children committing to 30 year promises while still in school.

We have now arrived at a junction where it would be cheaper for an sixth form student to take out a mortgage, or a payday loan to cover the cost of their tuition fees than use the 'student loan' option.

I borrowed £37,506.67 so I could go to university, within 14 months of graduating, I owed £42,648.40. How did this happen? What is in the small print? Why is this justified?


Interest rate

Interest rates on student loans vary considerably. However for most of the post-2012 cohort you will be paying RPI plus 3%. There are so many things wrong with this.

Firstly, RPI (retail price index) is the highest form of measured inflation, considerably more than the standard used CPI (consumer price index).

Secondly, where does the additional 3% come from?

Thirdly, RPI can change with the wind, it is currently 1.6%, so most of us are paying a total of 4.6% interest, however it looks like RPI is increasing to 3.1%, meaning we will be paying a total of 6.1% interest every single month.

As an idea of how exploitative that is, the Bank of England has set interest at 0.25% as a base rate.

The fact is that interest rates on student loans is so high and so susceptible to sudden increase that it is simply cheaper to get a different sort of loan, other wise you may be paying more in interest than your loan actually costs. Hilary Osborne of the Guardian said: "The rate is higher than that of the best-buy personal loans on the open market, as well as many mortgage deals, and above the 0.9% currently being paid by those with earlier student borrowing."

Compound interest

Student loans use a system of compound interest, in other words, you are paying interest on your interest.

For example, I borrowed £37,506.67, instead of paying 6.1% interest on that, I am obliged to pay 6.1% interest on £42,648.40. And as every month this figure goes up, the interest rate will be applied to this new higher number.

The interest rates on student loans is ruthless. I started paying interest 6 days after my first maintenance loan payment. I borrowed some money on a Monday and was paying interest by the Sunday.

By the time I graduated I had paid around £4,000 in interest. During this time I was not earning any money, the BoE interest rate never exceeded 0.25%, and the legislature that created this situation continued not paying for any of their tuition.

Additionally, as Freddo's remained unaffected by inflation to stay at 25p, our student loans hit a peak interest rate of 6.6% and I accrued interest of £186.40, in one month.


Pay back rate

While our debts increase ridiculous amounts due to inflation and interest, the rate at which we pay back does not.

In 2012, the government stated that we would be required to start paying back our loans at £21,000, however this would rise annually with average earnings.

Five years later, it is still set at £21,000.

Moreover, if you do earn enough to start paying back your loan, how much will you be paying? Say you earn £25,000 a year, your debt is probably increasing by £180 interest each month. The amount you pay back? £30 a month. You're barely making making a dent in your interest let alone your actual debt.

Say you're in the unlikely position of a graduate earning £35,000 a year, your debt is still increasing by £180 interest each month. You pay back? £105 a month. Still not even paying off that months interest. What's the point?

International comparisons

At least our tuition fees aren't as high as America right? At least we're not the only ones getting ripped off? If it's a race to the bottom, at least we're not first?

Wrong. We face the highest student loan interest rates in Western Europe.

Research by the Intergenerational Foundation shows that the interest rates on our student loans are the third highest in the OECD, only topped by Mexico and the Czech Rpublic, whom for what its worth have much cheaper tuition fees in the first place.


On top of this fiscal insanity, the government has begun to sell off the student loan book. What this will mean is still unknown.

Who will be paying the money back to? What unlimited amount can our interest rates rise to? What surreptitious entity will be the overlords of our lifetime of debt?