Tue | Mar 20, 2018

SLB moves to reducing balance loan calculation method

Published:Wednesday | April 6, 2016 | 9:42 AM
In this April 2005 file photo, students' loan applicants lineup outside the Students' Loan Bureau offices in New Kingston.

The Students’ Loan Bureau (SLB) is reporting that it has now started to calculate interest rates on loans on a reducing balance scheme.

Under this method, interest is calculated on the outstanding balance.

Previously, the SLB used the add-on method where interest is computed on the principal amount borrowed. 

The bureau says the new system, which will apply to all loans, took effect on April 1.

The SLB says it also implemented a dual interest rate for loans on April 1.

The loan agency explains that an interest rate of 7.8 per cent will be charged on loans during the period when the student is in school, while a rate of 9.5 per cent will be applied after the individual graduates.

It says as a consequence, the average interest rate on student loans under the new reducing balance scheme will work out to approximately 8.6 per cent, a minor drop from the 9 per cent charged under the previous add-on regime.

The SLB asserts that as a result of the change beneficiaries should see savings as they will see a cut in their monthly payments.

The agency says it too will benefit as the interest rate reduction is expected to positively impact the SLB’s collections rate and by extension, the reflows to the Revolving Loan Fund for on-lending.

Meanwhile, the SLB says the interest rate for the Pay As You Study loan will be 9.5 per cent effective 1 April 2016.

It says loans provided for Post Graduate studies will remain at 13 per cent interest under the new system.