A student loan is designed to help your finance your education. The extra help a loan provides can be the difference between someone attending university or college, or not going at all.
They are a low-risk form of debt, but they can become unmanageable if you continually fail to pay. In this article we explore student loans in more detail, including what they are, what they pay for, and where you can find student loan debt help if you fall behind on your payments.
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What is a student loan?
Going to university or college is expensive. Fees alone can reach into the tens of thousands of pounds per year, and spread across a three or four year course, that’s a lot of money. That’s before you take living costs into account.
Even if you are living at home, you may need some form of financial help in order to see you through your studies. If you are living away from home, accommodation and other living costs are even higher.
Student loans were created to help with all of the above. They help people cope with the costs associated with student life, including:
- Tuition (Lectures, seminars, and tutorials)
- Accommodation (Rent, utilities, food, and other bills)
- Travel costs (Getting to and from the university or college campus)
- Study materials (Textbooks and other materials required to complete the course)
- Personal equipment (Laptops, tablets, cameras, and specialist software)
Loans are available to people who are studying full time or part time, and they are sent either to the students’ bank account, or directly to the college or university, depending on what the money is being used for.
While student loans can often feel like ‘free money’ at the time, by taking one you are agreeing to take on a level of debt, and will eventually be required to repay that debt. As far as borrowing goes, a this is one of the more controllable forms of debt, but it is possible for action to be taken against you if you miss repayments. If this happens, you should seek debt advice.
How much can you borrow as a student loan?
The amount you can borrow depends entirely on your personal circumstances and financial situation. There are many factors that will be considered by student finance companies when you apply for your loan, including:
- Where you will be living (living costs in London, for example, are higher than in Glasgow)
- How much your parents earn (in theory, the more they earn, the less you will need help from elsewhere)
- Which college or university you will attend (the higher your tuition fees, the more money you may be able to borrow)
- Whether your course is full time or part time
There are also two different types of loans, which affect the amount of money students get. A maintenance loan goes towards living costs for people who will be living away from home during their degree, and covers things like the cost of accommodation.
The tuition fee loan does just what you would expect – covers the cost of the course itself. While maintenance loans are paid straight to your bank account, allowing you to arrange payment for things like household bills yourself, tuition loans are sent direct to the university or college in order to cover fees.
Like most other debt, student loans come with interest, which is calculated based on the inflation rate. The interest rate for this type of loan is usually relatively low, and has fluctuated between 1 and 1.5% since 2011.
Is having student loan debt bad?
In a word, no. It’s important to be able to access a good of quality education, and getting a loan is one way of making that happen. Many students need extra financial help in order to go to university or college, meaning student loan debt is extremely common, both in the UK and across the world.
Unlike a credit card, store cards, or other types of debt, you will only have to repay a student loan once you earn above a certain threshold – in other words, when you can afford to.
This, coupled with low interest rates, makes this kind of debt one of the most manageable around if you handle it responsibly.
If you’re worried about your level of debt, or you’re having to rely on credit cards, payday loans, or take other types of debt in order to repay your loans, you should seek debt advice – there are a number of debt advice services in the UK who will be able to help you get your debt back under control.
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When do I need to repay my student loan?
Depending on the type of loan you have, you won’t have to make any payments to your student loan until you’re paid more than the threshold for your student loan plan. The situation for repayment is as follows:
- If you have a Plan 1 loan, you’ll start paying this back as soon as you begin earning more than £19,390 in a year.
- If you have a Plan 2 loan, your repayments will start as soon as you begin earning more than £26,575 in a year.
Because you only start to repay when your wages go above a certain level, it’s easy to forget about your debt when you first leave higher education.
A new graduate in their first job will typically find themselves earning less money that they ever will in future, so it’s understandable that repaying a student loan isn’t front-of-mind.
That can sometimes mean people experience a shock when they do eventually have to repay. The idea behind the threshold is that, by the time you start repaying your loans, you are earning enough to be able to afford it.
Not keeping up with loan repayments once they begin, however, can end up causing you serious money issues.
How do you settle student loan debt?
A student loan can mean the difference between being able to go to university or college, and not being able to go at all. Once you graduate and head out into the world of work, however, it’s important to understand how you’ll pay it back.
Normally, payments will come straight from your wage through the PAYE system, or by self-assessment – although you’ll only have to complete a self-assessment if you’re self-employed.
Payments will come off directly, after your tax and National Insurance is paid, so this can sometimes come as a surprising extra expense. Also, if your yearly wages are below the level mentioned above, but your weekly or monthly wages push you above it every so often, you may find an occasional payment to your loan on your wage slip.
Most people find repaying this kind of loan fairly manageable, because you make incremental payments over a long period of time – small enough that you may not notice it.
Problems arise when people are unprepared for their payments to come off and have committed money elsewhere. You should seek advice on debt repayment if you ever find your finance stretched, or you’re struggling to cover payments.
How do you get your student loans forgiven?
While student loans aren’t ‘forgiven’ in the UK the way they are in the US, they will be written off after a certain amount of time, depending on which repayment plan you’re on, and where you live.
If your course took place in 2006/07 or earlier, your loan will be written off when you’re 65, or 30 years after the April you were first due to repay. If your course was post-2007/08, your loan will be written off 30 years after the April you were first due to repay.
Rest of UK
If your course took place in 2006/07 or earlier, your loan will be written off when you’re 65, or 30 years after the April you were first due to repay. If your course was post-2007/08, your loan will be written off once a 30-year period has elapsed since the April you were first due to repay.
Whether you are from Scotland or the rest of the UK, all Plan 2 student debts are written off after a 30 year period, on the anniversary of the first April you were due to repay.
What happens if I don’t repay my student loan?
If you don’t keep up with your student loan payments, it can cause serious money problems, and you may find yourself being pursued for loan repayment by the Student Loans Company (SLC). When taking out a student loan, you are agreeing, by law, to repay your debts to them in good time.
While the Student Loans Company are not officially authorised and regulated by the Financial Conduct Authority, they do endeavour to act with the same ethos as as bodies who are regulated by the Financial Conduct Authority – a longer way of saying that the SLC should act responsibly when pursuing your debts.
Although they’re not authorised and regulated by the FCA, the SLC do have the right to accelerate your student debt if you refuse to pay. This means they can get a court order for any outstanding debt and force you to pay back in one go – that’s every penny you owe, plus interest, as a single payment.
If you have council tax, car insurance, or other sizable payments coming off at the same time, this might be completely unaffordable.
But since the payment will be taken straight from your wages, there might be little you can do to stop it. If your debts leave you struggling with other bills, like credit cards and other services, you should seek debt advice immediately.
Will a student loan affect my credit rating?
Unlike or types of credit, a student loan will not show up on your credit report. Even though some lenders may ask you whether you have had one, like mortgage companies performing an affordability check, your loan will not show up on the report itself. That means it cannot affect your credit score.
The exception to this is if you fail to make payments when they’re due. Once you meet the threshold to begin paying your loans back, you should make sure to repay that debt on time. According to Experian, the single most important factor in credit scoring is payment history. That’s no different for a student loan.
If you fail to make your repayments on time, or fall behind on your debt for any reason, the delinquency on those payments will remain on your file for a period of seven years.
As soon as the delinquency shows up on your credit report, it will be visible to any future lender. That may mean you struggle to access credit in the future, or need extra help in order to do so.
How can I reduce my student loan debt?
It can be hard to keep track of payments towards your student loan debt, especially when the money comes off before you even see your wage slip. There are things you can do to make sure you stay on top of them, however.
Firstly, it’s important to check that the correct amount is being taken via PAYE. If you think you are overpaying, contact your payroll department and the Student Loans Company to have this reviewed.
If you’re self-employed, use an online calculator to work out roughly what you’ll owe based on what you think you’ll earn and put this amount aside. Doing this as soon as possible will give you more time to save up
You can also work with an accountant who will help you with your tax return before it’s filed. This can help ensure that you’re paying the right amount.
Where do I get help with student loan debt?
If you are struggling to pay off your student loans and feel like the debt question is hanging over you, it may be time to seek debt advice.
IVA Plan boasts a team of cross-industry experts who combine years of experience handling different types of debt, with the empathy needed to get you back on your feet. They can offer you free debt advice, help you work out exactly what you owe, and provide you with an affordable student loan payments plan.
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