Student Loan Repayments
It has been predicted that people who start University in 2011 will leave with debts averaging £26,000. However, this is set to more than double for people who start their University course in 2012. Therefore, it is essential that you know what you will be repaying before you borrow and that you understand how student loan repayments work. This will help you to keep on top of your finances and ‘account’ for repaying your student debt.
How is the interest rate calculated?
For people who got a student loan and started their UK University course on or before September 2011, the interest rate is calculated by either adding 1% to the existing Bank of England base rate or by using the rate of inflation. The lowest figure for the year is used. In 2011, the inflation rate was about 5.3% (on average) and the Bank of England base rate was 0.5%. Therefore the student loans company used the base rate + 1% so that the interest rate was 1.5%. However, the interest rate for courses starting on or after September 2012 will be calculated by adding 3% to the inflation rate.
Compound Interest For Student Loan Repayments
This basically means that you pay interest on existing interest. Let’s look at an example. If you finish University with debts of £26,000 and the following year (12 months of interest) your debt is £26,300, you will pay the next month’s interest on the £26,300, not your original debt. Therefore, the amount of interest charged each month will go up, even if the interest rate doesn’t increase.
When do you start paying it back?
You start paying your student loan in the April after you graduate. For example, if you graduated in June 2009, you would start paying your loan back in April 2010. However, there is an ‘income threshold’ which you must meet before you have to start repaying your loan. If you started a course before September 2012, you have to earn £15,000 before you start to repay your loan. If you start a course after September 2012, you have to earn £21,000 before you start to repay your loan. 9% of everything that you earn above the ‘income threshold’ will be taken as a repayment.
How do you repay your loan?
How you repay your loan depends upon whether you are employed or self-employed. Today most people who are employed work on a PAYE (Pay As You Earn) tax scheme, meaning that tax and national insurance is automatically deducted from their account when they are paid. People on the PAYE scheme will have their student loan repayments automatically deducted once they are earning more than the ‘income threshold’. People who are self-employed have to make their own payment arrangements.
Student loan repayments calculator
A student loan repayment calculator gives you a simple and easy way to calculate how much you owe by entering some basic details such as your tuition fees, your maintenance loan and the length of your course. A student loans repayment calculator is an excellent way to keep on top of your finances without having to spend ages working it out yourself.