Market Loop - Student loan interest rate capped

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13th June 2022

Bite-sized business news from the UK and beyond

Good morning What better way to start the week than with news that a heatwave is on the way. A plume of air coming up though France from North Africa and into the UK means that London and the southeast could see temperatures of 35C by the end of the week with highs elsewhere widely expected in the mid-20Cs.

Today's stories

Student loan interest rate capped
Russian McDonald’s reopens under new ownership

UNIVERSITY
Student loan interest rate capped

What happened?
Over the weekend the government announced that it will cap student loan interest rates for graduate borrowers to protect them from a rise in inflation. The change will affect current students in England and Wales, and graduates with outstanding loans who started university in/after 2012.

Interest rates on student loans are reset annually and determined by adding 3% to the Retail Price Index (RPI) measure of inflation. However with RPI at 9% - the highest in 30 years – students would be facing 12% borrowing rates.

So the government has capped the rate at 7.3% effective from this September.

But it won’t affect monthly repayments, which are based on income. Instead it means people who have taken out loans will owe less in the long term than they would have done if interest rates had not been capped below 12%.

For example, someone with an outstanding loan of £45,000 would reduce their accumulating interest on the total value of the loan by around £180 per month, compared to 12% interest rates. The government says that the move will protect graduates from the rising cost of living and global economic pressures.

But in practice it’s likely to only benefit the highest earners. Repayments are calculated by income so graduates earning less than £27,295 don't pay anything back. For those who earn above that threshold, the amount repaid doesn't vary because of a higher interest rate, rather it’s a fixed 9% of what you earn above the threshold.

Unless you're a high earner and will pay back most or all of your loan before it's cancelled (which happens 30 years after you graduate), the amount of interest added doesn't make a difference to the amount you'll repay.

Other stories to keep you in the loop

Government's 'sugar tax' is set to be replaced with UK's first food strategy for 75 years
US inflation hit a new 40-year high in May of 8.6 percent
Morrisons raises staff pay to £10.20 an hour amid cost of living crisis
Octopus Energy enters race for failed energy provider Bulb with late bid
Retailer Matalan's future in doubt as lenders meet
Google engineer put on leave after claiming chatbot can express thoughts and feelings
Biden to end Covid testing requirement for travel into US
Dragons’ Den star Hilary Devey dies aged 65

RUSSIA
Russian McDonald’s reopens under new ownership

What happened?
Yesterday 15 McDonald's restaurants in Russia reopened under new Russian ownership and a new name: Vkusno & tochka, which translates as "Tasty and that's it".

How did we get here: McDonald’s was one of nearly 1,000 Western businesses that said they’ll reduce their operations in Russia or leave the country entirely as a result of the war in Ukraine. According to the Wall Street Journal, so far these corporate exits have cost the Russian economy $59bn.

McDonald’s was one of the first international brands to open in Russia after the Soviet Union collapsed in the early 1990s. When the first McDonald's opened in Moscow an estimated 30,000 Russians queued up to try its products. 30 years on McDonald’s has sold its 847 restaurants to local licensee Alexander Govor, taking an accounting charge of $1.4bn in the process.

The new Russian owners have re-launched with a new logo – supposedly representing two French fries and a burger but also very close to an ‘M’. Some social media users have pointed out that it bears a striking resemblance to the flag of Bangladesh.

The company plans to reopen 200 restaurants in Russia by the end of June and all 847 by the end of the summer.

Zooming out: The reopening of the locations will be a test of how well Russia's economy can function without global brands and become more self-sufficient in the face of tough Western sanctions.

Stat of the day

According to Forbes magazine, golfer Tiger Woods has become only the third athlete to reach a net worth of $1bn, joining basketball players LeBron James and Michael Jordan

Interesting links from around the web

Thrifty summer: five ways to see the world for next to nothing
Why sleeping on your back is the best sleep position
Want to change your life? Why thinking 10 years in the future can be the right strategy

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Market Loop - Student loan interest rate capped

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