Skip to content

Real interest rates – submission to Treasury Committee report

May 27, 2019

I’m posting this again as it connects to yesterday’s post on reducing interest rates. The pdf included at the bottom has more detail and the reminder that the Browne review recommended a real interest rebate (for those whose monthly repayment was less than any above-inflation interest accruing).

But, in general, ICR loans cannot be understood by looking at the interest rate – because payments are not made in a way that is comparable to fixed term repayment loans where the level of cash payments is fixed (and where the first payment is the most valuable!).

That a real interest rate encourages people to do so is a design problem.

Critical Education

I recommend reading the Treasury Committee’s report into Student Loans. It was published last month and is based on a series of hearings held from October to December.

I prepared a couple of private submissions before my appearance as a witness. Unfortunately I neglected to “OK” them for publication afterwards. One was on the background to interest rates on student loans; the other a briefing on accounting.

I have covered the accounting on here in detail but the interest rate piece summarises some thoughts that came together at the time. The pdf below gives some background to the following extract from the Treasury report:

The Committee also took evidence from Dr Andrew McGettigan who, when asked about the interest rate as a mechanism to introduce a degree of progressivity into the student finance system, argued that this was not the Government’s original intention.
(page 17)

The exchange referenced above…

View original post 712 more words

Advertisements

From → Uncategorized

Leave a Comment

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: