Student Loans
The ‘price’ of education continues to increase on a yearly basis. For most families, further education is very important. However, it can also be a huge financial burden, particularly if a family has more than one child at University. This is because students not only have to pay for their tuition fees, but also have to pay for their living costs and accommodation. For this reason, many students decide to take out student loans.
From 2012 the government has given Universities the option to increase their tuition fees up to £9,000. Between 2006 and 2011 most Universities were charging around £3,000, so the new fee is almost tripling what students were paying between 2006 and 2011. Most of the Universities in the UK (particularly in England) have decided to push their tuition fees up to £9,000 per year as of September 2012. Therefore, the requirement for student loans has never been a greater requirement for student loans.
Should you get a Student Loan?
This is very important to think about. Most people will be entitled to receive a student loans, but it is important to look at whether you will need it or not. The huge advantage of a student loan is that the interest rate is much lower than any other type of loan, and it does not really count as ‘debt’, even though it is a type of debt.
The best way to judge this is whether you need it or not. If you don’t think that you need a loan and can get by without one through support from your family or because you have a part-time job, then it might be best not to get one. You should think about the decision very carefully and choose the best option. Some people decide to get a loan for tuition fees but to pay for their own maintenance costs. What you decide to do is very much dependent on your own financial situation.
What student loans are you entitled to?
Student loans are dealt with by the student loans company. Now they give you the option to do most of your application online. Your loan is means-tested. This means that the amount that you can borrow is determined by the income in your household. For example, someone who has a combined household income of £20,000 will receive a bigger loan that someone who has a combined household income of £50,000.
Regardless of your household income, you can always borrow enough to cover the entire amount of your tuition fees. It is the ‘maintenance loan’ which will be means tested – this is usually a payment made at the beginning of each semester (September, January and April) to help you to cover living costs such as rent food and other everyday costs such as travel.
What about Student Loans repayments?
For people who enrolled on further education courses between 1998 and 2011, those who got a loan have to pay 9% on everything that they earn over £15,000. The interest rate on the loan is calculated in one of two ways, either by the rate of inflation or by the Bank of England base interest rate, plus one per cent. The lowest figure is used. So, for the year September 2011 to September 2012, the interest rate on student loans is 1.5% (Bank of England base rate (0.5%) + 1%)=1.5%
For those with loans starting in 2012 or afterwards, they have to pay 9% back on everything that they earn over £21,000. However, the interest rate will be worked out differently. In this case it will be the inflation rate for the year plus 3%.
When do you stop paying?
You stop paying your student loan when your income falls below the threshold of £15,000. If you graduate and, for the next two years, don’t get a job that pays more than £15,000 or £1250 a month, you won’t pay it back. However, your ‘debt’ will continue to increase. Debts from students loans are also wiped if you pass away or are unfit to work. Students that started between 2006 and 2011 will have their debts wiped after 25 years (35 years for Scottish students). Students that start from 2012 onwards will have their debts wiped after 30 years.
Keeping track of loan payments and repayments
Whilst studying at University, the Student Loans company currently provides you with a yearly summary of your loan payments. You may also need to reapply for the loan each year that you are studying. The company also has a phone number that you can call and an online area where you can login and access your information.
When you graduate, you will receive a yearly summary of what you owe and can contact them or login to their online system at any time. It is important to note that, for people on PAYE systems who pay tax automatically every month, the repayment is automatically taken. Those who are self-employed have to make specific arrangements to repay.
The process
1. Decide if you need to take out a student loan.2. Apply to the Student Loans Company – the earlier the better
3. Receive your Quote
4. Accept or Reject
5. If you accept, you will normally receive payments in September, January and April
6. Reapply each year (if necessary). You will usually be contacted by the student loans company
7. When you graduate/finish University and start earning over the threshold, you will start to repay your loan.
8. Keep on top of your finances at all times. Always be aware of what you owe and how much you are paying.