Student loan interest is ‘absurd’, say MPs

The measure used to calculate student loan interest is “absurd”, an influential group of MPs has claimed, in a new attack on the high rates charged to graduates.

Nicky Morgan, chair of the Treasury Committee, said it is “grossly unfair” that the retail prices index (RPI) measure of inflation is used as the basis for setting student loan rates, rather than the consumer prices index (CPI).

Both indices reflect the monthly change in the cost of a “basket” of goods and services. But they differ, often by a percentage point, because they track the costs of different items and cover different parts of Britain’s population.

The CPI measure of inflation was 2.3pc in March this year, while RPI was 3.3pc in the same month.

Ms Morgan said: “As RPI has been de-designated as a national statistic, the committee has urged the Government to abandon its use to calculate student loan interest rates in favour of CPI.”

She said the Government insisted that using RPI allowed for “consistency over time”.

“Continuing to use a measure that it readily admits is flawed, on the grounds of consistency, is absurd; it guarantees that student loan interest rates will be consistently flawed,” she added.

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