Government puts brakes on deflation loan windfall

British students could be in line for a student loan repayment from the government as the UK is hit by deflation for the first time since the 1960s.
Interest on student loans is calculated using the Retail Price Index (RPI) measure of inflation, with the aim of keeping the total value of the loan in line with prices over the entire repayment period.
However, RPI figures revealed on 21 April show that prices in Britain fell by 0.4 per cent over the course of the previous year, meaning that instead of paying interest to the Student Loans Company, student debtors in the UK should expect a small repayment from the government.
The National Union of Students is campaigning for all loans issued before 1998 to be made eligible for negative interest payments. Officials have delayed any decision on the interest rates until September.
Speaking to The Journal, Edinburgh University Students’ Union President Adam Ramsay said: “If RPI had doubled, you can be sure that the government would be making students pay the difference.
“They can’t change the goalposts now that it doesn’t benefit them much. Deflation means the same value is reached with less money – that means students should be paying back less than they borrowed.
“A deal is a deal,” Mr Ramsay said.
This is the first time since student loans were established that the UK has experienced negative inflation.
The costs of many government initiatives have increases pegged to inflation, including jobseekers allowance, housing benefit and the state pension; however, all of these are protected by agreements that dictate a minimum increase no matter what the value of the RPI.
However, analysts have expressed doubt that students will see the benefit of deflation in their student loan repayments. Speaking to The Economist, Lucy Newcomb, a partner at law firm Addleshaw Goddard said: “For the government, the worst case scenario is that no interest is payable.”