Student Loan: A Complete Guide to University Debt
Unless you are related to the Queen or Richard Branson or have won a lottery ticket, you’ll have to take out (or perhaps have already taken out) a student loan in order to pay for your university degree.
In the past, tuition fee in England was hiked from around £3000 per year to £6000-£9000 per year. Thus, if you’re looking for a ‘3 year’ undergraduate degree, then it would cost you an eye-watering £27,000, for tuition itself.
So, with living expenses and books, the expense of a university degree could really stack you up. Due to this, it becomes necessary for students to take out a student loan just to make the ends meet.
However, before taking on this debt or if you’ve already taken it out, this myth-busting guide on student loans will help you comprehend what you’re actually getting yourself into.
Here’s what you need to know about student loans:
- What does a Student Loan Cover?
In the UK, there are basically 2 types of student loan available to you; namely Tuition Fee Loan and Maintenance Loan.
Tuition Fee Loan: UK part-time and full-time students can opt for a yearly loan so as to cover their complete tuition fee. It is paid directly to the college and the student is supposed to pay it back.
Maintenance Loan: This type of loan covers a student’s living expenses-that is accommodation, books, food, etc. One can apply for this loan only if they’re a full-time student in the UK. Also, the loan amount is means-tested based on the household income and if they’re living with their mum and dad.
Both the loans are intended only for undergraduate degree applicants, though there are several loans available for students applying for a Master’s degree.
- You’re Scottish or Welsh or Northern Irish!
Yes, Scottish universities do not charge any fees. But, before you pack your bag whilst whistling, “I will take the high road and you’ll take the low road”, you need to know that it is free only for Scottish students who are studying in Scotland. For other students, they can expect to cough up almost £9000 per year.
Welsh students get a grant to go towards their tuition fees, basically at any university in the UK. On the other hand, Northern Irish students have to pay around £4,030 per year in order to attend Northern Irish universities.
- How much can you Borrow?
In England students can borrow a loan amount up to £9000 per year so as to cover their tuition fees. But, the amount that they can take out a year for their living expenses is based on whether they’re living with their mum and dad or in halls. If they are living in London, then chances are they’ll receive more money.
The loan amounts might be different in Wales, Scotland and Northern Ireland and to find out more students will have to go to their respective government’s website.
- When do you Pay your Student Loan Back?
You don’t need to fret, as the debt collectors will not empty your pockets by the time you reach your graduation ceremony.
You need to start paying off the student loan when you begin to earn around £21,000 per annum. But, if you’re earning less than the set amount, which is perhaps true in the case of students who are fresh out of university, then you need not pay back anything.
Now, if you don’t more than £21,000 per year, say for the rest of your life, then you’ll “never” have to pay. Likewise, student loan debt is wiped off after 30 years, which means “free money”.
Nevertheless, most of you would end up earning over this threshold and it’s quite obvious that you’ll probably wish to. So, it’s crucial for you to know how much you’ll be paying once you start working.
- How much will you actually Repay?
So, you walk out of university and land up working in a firm, which is paying you more than £21,000 per year. This is when the student loan firm, from where you took out the loan will come a-knocking.
But, the question is how much do you need to pay?
The answer to this is 9% of anything that you earn over the threshold of £21,000 a year. To calculate the monthly payment all you need to do is; take away £21,000 from your annual income before the tax and work out 9% of the rest, then divide the figure by 12 (the number of months).
Say for instance, if you’re earning £30,000 per year, then take away £21,000 and you’ll be left with £9,000. 9% of £9,000 would be £810 and when you further divide this amount by 12 months, £67.50 will be the answer.
Put simply, for a salary of £30,000 you’ll be paying £67.50 every month to the bank or financial institution that loaned you the money.
- How do you Pay the Student Loan Back?
If you’ve taken out the student loan in the year 2012 or after that and you’re earning more than the threshold per year, your employer will be calculating your repayments, which will be directly taken off your income. The amount will be mentioned in your payslip every month.
If you’ve taken the loan before 2012, you’ll still be paying the amount through your income but, the earning threshold would be lower-that is £17,335.
As the loan amount would be taken out of your income even before you receive it, you’ll not notice it. It’ll be like money that you never had in the first place.
- Can you pay the Student Loan Off all as soon as you Leave University?
Though, it’s normally advised to people to repay their debts as soon as possible, paying off the student loan all in one go may not be the best way to make you use of the free cash.
Here’s why it isn’t the best way:
- Firstly, because you might have other debts as well, like personal loan, credit cards, etc. and in terms of interest, this costs way more than a student loan. So, it’s crucial to pay them off first.
- Secondly, it may be better to use any additional money in order to get on the housing ladder, which is quite difficult these days.
Nonetheless, if you really want to repay your student loans as early as possible, you won’t really be charged any penalty.
- What is a Maintenance Grant? Can you get One?
Maintenance grant is something that is given instead of a loan, so that you do not have to pay it back. It is mainly intended to assist students with their living expenses.
This grant is means tested and is made available only to those whose parents have combined salary of around £42,620 or less. Nevertheless, the government is looking to scrap maintenance grants from this year and swap them with larger student loans.
- Will your Student Loan stop you from getting a Mortgage in the Future? How will It affect your Credit Rating?
No, your student loan will not leave any “footprint’ on your credit file. So, when you’re applying for mortgage, personal loan or credit cards in the near future, the only way your provider will come to know about your student loan is if it is being asked on the application form.
- You’re Concerned about taking on so much Debt and you need Help
Yes, taking on a large amount of debt can be your major concern, but all that you need to do is stay calm. There’s a lot of media hype surrounding student debts, particularly since the increase in tuition fees.
However, your student loan is a debt that is unlike any other debt, because:
- You repay it only when you’re earning more than the threshold- that is £21,000-then too the repayment amount is minimal and of course manageable in comparison to other forms of debt.
- The payment made by you is through payroll, so you will not notice it coming off the monthly salary in the first place.
However, if you’re considering taking out a loan or have already taken out one, then it’s of paramount importance for you to check for Payment Protection Insurance (PPI).
This is a policy which was given alongside credit cards, loans, etc. either by making it obligatory or by simply adding it to the loan without customer knowing about it. So, if you’ve been mis-sold a PPI, then you can claim PPI yourself to get a refund.
To sum up, having a university degree is your future investment and if your repayments are handled properly, your student loan debt won’t rule the rest your life.