Question 1

What is the effective rate on a student loan?

Accepted Answer

The effective rate is the true annualised cost of your student loan, calculated as an internal rate of return (IRR). Unlike the headline interest rate, it accounts for write-offs — if your loan is partially written off, your effective cost is lower than the stated interest rate.

Question 2

Is my student loan interest rate higher than the Bank of England base rate?

Accepted Answer

The headline interest rate often exceeds the base rate, but the effective rate may not. Lower and middle earners whose loans are written off before full repayment have an effective rate well below the base rate. Higher earners who repay in full may have an effective rate closer to or above the base rate.

Effective rate

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