Woo, student loan! There’s nothing like getting that sweet notification seeing all 👏🏼that👏🏼dolla👏🏼 flow into your bank account. There’s only one problem. We’re not really sure how this whole student loan thing actually works.
What doesn’t help are the constant policy changes either. The £9000-a-year tuition fees cap will now rise to £9,250 from 2017 as reported by the National Student, and at the 2.8% inflation rate, this may rise above £10,000 in a few year’s time.
With all of this confusion, no wonder people are freaking out. Luckily, Money Saving Expert’s Martin Lewis has made this really useful myth-busting guide on your student loan right here. We’re going to recap the most important bits below.
You aren’t actually in a £50,000 debt situation
Don’t panic! Scary newspaper headlines may say you will owe the gov large sums of money, but really, the cost of university doesn’t really matter. What really matters is how much you have to repay – which is directly linked to how much you earn after uni.
Lewis sums it up like this. “Those who earn a lot after graduating will repay a lot. Those who don’t gain too much financially from going to university will repay little or nothing.”
You only start repaying your student loan when your salary hits £21,000 a year
If you were concerned about having to repay your student loan the minute you sign the dotted line on a new job, don’t fret. The system only kicks in after you start earning above £1,750 (before tax) a month.
How much do you have to repay, you ask? Your student loan repayment is currently fixed at 9% of your salary every year. We’ll leave you to do the maths, or you can head over to Lewis’ guide to have a better look.
The nice thing about this is the system is designed to make those who gain the most financially after uni contribute the most towards paying back their student loan. Pretty fair, we think.
P.S. The £21,000 threshold is currently fixed until April 2021, just FYI.
Your student loan debt will be wiped in 30 years
Yep, really. You stop owing any money either when you’ve completely cleared your debt, or when 30 years from the April after you graduate has passed.
If you never get a job earning above the current £21,000 salary threshold, this means you don’t have to pay a single penny.
In fact, most people will never pay their entire student loan back. Lewis puts it like this:
“In this case, what you borrow is irrelevant – you’ll just keep paying each month until it wipes after 30 years. This is one reason why all the talk of £50,000 is nonsense for most.”
Your student loan will be automatically deducted from your payroll
It’s actually your employer’s job to suss your student loan out. Since 1998 student loans have been repaid just like income tax, so you just get your student loan taken off your monthly salary before you receive it.
It literally doesn’t matter how much your course costs
Most unis charge £9,000 a year for tuition anyway, but regardless of whether you pay £6,000 or £9,000 a year, you’ll still repay the same amount each month as it all depends on how much your salary is (as above, 9% above £21,000).
What does change is how long you’ll keep having to repay the student loan for. The more you borrow, the longer you have – that is until your 30 years is up.
What we do have to worry about is your living (maintenance) loan
Mostly because it probably isn’t enough. In 2015 the ex-Chancellor George Osborne made the move to change maintenance grants (which you don’t have to pay back) into maintenance loans. And people were properly pissed off about this.
Let’s break it down. The money you get for living at uni depends on how much your family’s household earns.
What you’re guaranteed:
For students starting in 2016, the guaranteed part of the loan is 46% of the maximum loan.
What depends on your family’s household income:
Your parents or caretakers will be means-tested to see how much they will be expected to fill in the ‘gap’ for your living costs. The more they earn, the more they’ll be expected to pay.
So bear that in mind when you have a look at this table:
Maximum maintenance loan students can receive
Honestly? That’s not a lot of money. Most of the time, this loan barely covers accommodation fees.
So we’re going to put this huge disclaimer out there: don’t blow your maintenance loan on Fresher’s Week. It will mean you won’t have a lot to live on later on in the year.
A few more things about your student loan to keep in mind
- Credit ratings: Student loans don’t appear on your credit files. This may not be something you’re worrying about right this instance, but if you are concerned about your credit rating, this isn’t included.
- Mortgages: However, people will ask about your student loan if you want to mortgage a house. Having a student loan will make you look a little bit worse, but this usually cancels out if you’re earning a higher salary after having been to uni (which is likely to be the case).
- Outside of England: Students going to Welsh, Scottish and Northern Irish unis may have slightly different student loan rules, so do check!
Your student loan can change
2016 has been a whirlwind year for the UK’s government. We have a new Prime Minister, a new Cabinet – and they will have different approaches to the way they view higher education.
The Parliament is omnicompetent, which gives it the power to make changes to rules set in its past. So keep checking back here to see what’s new.
See? Your student loan isn’t so mysterious after all.
Feature Image © Stylecaster