Your ultimate guide to student loans
Moving into halls and making new friends is enough to make any fresher nervous, especially as many are living away from home for the very first time. On top of this, managing your money can seem like an added stress many could really do without!
Understanding the loan from the very beginning, before even starting your time at university, puts many at a distinct advantage as they move through their education. Those who are reaching the end of their degree may need a reminder of what to expect next.
Applying for a student loan
For many students this can feel like the most confusing process of starting university – even more so than the exams! However, it really needn’t cause lost sleep as the process is set out to work for everyone.
As university fees have risen, students can be expected to be charged up to £9,000 per year of study, which is the main purpose of the student loan. Visiting the DirectGov website is the place to start for this, and they will guide you through step-by-step.
Getting started with your application
To make the process go a little smoother, applicants will require a few bits and pieces to stop them from running around trying to find information! Keeping your passport, National Insurance and bank details to hand is a must.
While those with an unconditional offer can fill in their university details with certainty, those with conditionals will simply have to fill in the information according to their first choice university. Should the applicant not get the results they expect, a short and simple phone call can be made to change the details.
Your ‘household income’ will be assessed, which is different depending on your living circumstances. Many new students will be assessed according to their parents or guardians income, whilst those over the age of 25 living full time with a partner will be assessed according to theirs.
Misconceptions and mistakes
There are various misconceptions about the student loan which can leave some people more than a little confused. The important thing to remember is that the process is made as simple as possible so everyone has a chance of managing their money!
When it comes to tuition loans, no student has to be worried about paying them personally. When the new instalment is paid into the students account, the tuition fees are automatically paid to the university by the student loan company, meaning that money never enters the student’s account.
The maintenance grant can also be a confusing part of the loan: the grant is not given as a sum on top of the loan. For every pound of grant that is received, 50p is deducted from the student loan you’re eligible to pay for. This means you’re borrowing less, thus paying back less in the long run.
Credit rating fears
Unless you already owe the Student Loan Company for a previous loan, a bad credit rating will not affect your ability to apply for a loan. As an added bonus, when you pay back your student loan, the debts do not affect your rating in the future.
Keeping your overdraft under the limit
As a student, an overdraft can be a huge temptation, as it can effectively feel like free money. However, good management is always necessary when using a student overdraft. If students are cautious, they can truly benefit from it.
If a student requires an overdraft, the style of a student overdraft means that they can receive much better rates than others. The best advice that can be given is that a student should assess their financial situation and only borrow what they truly require.
An overdraft is best used as a safety net, as even the best intentions can go astray. Keeping track of the student’s spending, setting up a budget and trying to stick with it as closely as possible will mean that, come the end of university, they aren’t left with greater debt than necessary.
Repaying your student loan
Once students have reached the end of their education, repaying the student loan is, naturally, a worry. However, despite rising fees, repaying a student loan is a relatively painless process that can last for an unspecified amount of years.
No student will have to repay a student loan until after they have graduated and are earning more than £21,000 per year. The amount that is paid out per month (which is taken out automatically along with National Insurance and tax), depends on how much the graduate is earning.
There is interest on a student loan which begins whilst the student is learning. Whilst earning below £21,000, interest rises with the rate of inflation, whilst those earning more than £21,000 will be charged at the rate of inflation, plus an amount up to 3%.
The amount that is taken out on a monthly basis once the graduate earns more than £21,000 depends upon the amount earned, but as a general guide, those earning £21,000 can expect £30 per month to be paid, whilst those earning £40,000 can expect around £142.50.
Don’t be afraid of debt
The student loan debt can seem like a daunting prospect, but students and graduates needn’t have the same anxieties about student debt as they do any other form. For most students, further education would be an impossibility without a student loan, with thousands in the country in a similar situation.
The student debt is often called a “good debt”, as it is something that is considered by many to be a necessity that often cannot be afforded up front and has a low interest rate. Many choose to look at the repayments as a “graduate tax” rather than loan repayments, as tax payments work in much the same way.