Implementation of Reducing Balance Interest - Get Current; benefit from Reducing Balance!
The Students’ Loan Bureau (SLB) implemented the Reducing Balance Method (RBM) of interest calculation effective April 1, 2016, therefore all loans will be computed on this basis, going forward.Under RBM, interest is calculated on the outstanding balance whereas under the Add-on method, interest is computed on the principal amount borrowed.
The SLB also implemented a dual interest rate regime effective April 1, 2016. In that regard interest rates will be applied on the RBM basis as follows:
- 7.8% on loans during the in school years (Moratorium period), and
- 9.5% on loans in the Repayment stage (student graduated).
Consequently, the average interest rate on student loans under RBM is approx. 8.6% effective 1 April 2016.
This will result in significant savings for beneficiaries, compared to the previous Add-on interest rate of 9% which is equivalent to 14-15% under RBM. The monthly amounts payable by beneficiaries under RBM will be reduced by approximately 28%, as such payments will be more affordable. The reduction in interest rate is expected to positively impact the SLB’s collections rate and by extension, the reflows to the Revolving Loan Fund for on-lending.
Under RBM persons who pay their monthly installment on time, will reap significant savings, however, persons who fail to make payment by the due date will not realize the full benefits of RBM interest.
The interest rate on the SLB Pay As You Study (PAYS) loan will also be 9.5% effective 1 April 2016.
Loans provided for Post Graduate studies will remain at 13% interest under RBM.
The SLB has offered Incentives to beneficiaries to assist in clearing or reducing their loan arrears in order to benefit from RBM interest.