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How does student debt work?

Posted 26 April 2016 by Christine Walsh

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There’s no need to be confused about student debt. Our no-nonsense blog will tell you everything you need to know.

Feeling confused about student debt? Well, don’t be. We’re going to explain everything you need to know. 

There were some major changes made to the way student loans worked in 2012, so we’re going to look at how everything works as it stands and clear up any confusion. Let’s get stuck in. 

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Q. Who provides the money for my student loan?

A. The aptly named Student Loan Company provides the money if you’re borrowing to study in England, Wales, Northern Ireland or Scotland. 

Q. What help can I get?

A. You can get a Tuition Fee Loan, which is paid straight to the university, and a Maintenance Loan, which will be paid to your account and should be used towards your living costs - like rent, bills and textbooks. 

You may also be entitled to a Maintenance Grant or grants from the university you’re attending. If you are entitled to a Maintenance Grant, this will lower the amount you get in your Maintenance Loan. However, unlike with a loan you won’t be expected to repay the grant.

You may be entitled to a Special Support Grant. This provides you with the same amount as the Maintenance Grant, but the difference is that it won’t reduce the amount you get in your Maintenance Loan. 

Q. How much money will I get?

A. You are allowed to borrow up to £9,000 for the Tuition Fee Loan. How much you can get for the Maintenance Loan varies depending on where you’re studying and if you’re studying full-time. If you’re studying full-time and living away from home outside of London, the maximum you get for the Maintenance Loan is £8,200.

For more info on Maintenance Loans click here

You don’t have to borrow the full amount – some courses are cheaper than others and if you live at home you may not need a Maintenance Grant or Loan at all. 

Q. Can I get a loan for further education?

A. From August 2016, the Government will offer a Postgraduate Loan to cover the cost of studying for a Master’s degree. You’ll be able to borrow up to £10,000 to put towards your fees and living costs.

Q. Do I have to pay everything back?

A. You do have to pay the Tuition Fee Loan and Maintenance Loan back. 

The Maintenance Grant and any bursaries or grants you get from your university don’t have to be paid back. 

Q. When will I start paying it back?

A. You only have to start paying the money back once you’re in work and earning over £21,000 per year. 

For every £1.00 you earn over £21,000, you will pay back nine pence, or put another way 9% of everything over the threshold. 

Full-time students only have to start paying their loan back in the April after they graduate – providing they earn enough. 

Q. Is the £21,000 threshold due to rise?

A. The Government plans to raise the £21,000 threshold in-line with average earnings in 2021. 

Q. Is student debt ever wiped off?

A. Yes. Thirty years on from the April after you graduated, all your remaining student debt is written off. So, if you never earn over the threshold during this time, you won’t repay anything at all. 

Q. Do most people end up paying it all back?

A. Unless you become a very high earner, it’s unlikely that you will end up paying everything back that you borrowed. Most people will simply pay back what they need to if they earn over £21,000 until the debt is written off after 30 years. 

Q. Is interest charged on the money I borrow?

A. Yes. Interest is charged on the money you borrow as soon as it enters your account. While you’re at uni, interest is charged at the Retail Price Index plus 3% of what you already owe. 

If you graduate and earn between £21,000 and £41,000, the amount you pay in interest will gradually rise and will go up depending on how much you’re earning. For every £1,000 you earn over £21,000, your rate goes up by 0.15%. 

If you start earning over £41,000, the rate goes up to 3% plus Retail Price Index. 

Q. Am I responsible for paying the money back?

A. If you’re in employment, your employer is responsible for making sure your student loan repayment is deducted from your wages every month. 

If you were to become self-employed, you would be completely responsible for making sure you were paying the money back correctly.

Q. Can I pay the money back in one go?

A. Yes. If you happen to come into a lot of money, you are perfectly free to pay the whole amount off in one go and you won’t be charged for doing so.

Q. Should I pay it off in one go if possible?

A. You’ll probably find that it’s not in your best interests to pay the money back early. This is because the rate of interest that you’re charged on the loan will probably be less than the interest that you would earn if you were to put that money into a savings account. 

So, you’ll end up with more over the long-run by saving rather than paying off your student debts. 

Hopefully that’s cleared a few things up for you if you’re starting university but worried about the debt. While you’re at uni it’s really important that you stay on top of your money and budget carefully. Save the Student has loads of money-making and money-saving ideas especially for students, and our blog also has lots more ideas to help you, so make sure you check it out. 

 

by Christine Walsh

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