As a student, the cost of tuition, books and living expenses can easily drive students into all kinds of debt. While you could have debt from multiple sources, all debt is not the same. Certain debts should be made a priority over others.
First, let’s take a look at student loan debt. With the increasing cost of education, it is no surprise that student loans are more frequent since maintenance loans. Apart from the rise in tuition, students need to borrow more funds to make ends meet.
It is Difficult to Live on Student Loans
Your student loan is divided in two parts: the tuition fee loan, which covers your uni fees, and the maintenance loan, which covers the cost of living.
The tuition fee loan is paid directly to the university.
The maintenance loan proceeds are deposited into your bank account at the beginning of each term.
If the student’s parents earn below £25,000 per year, the student is eligible for a full maintenance loan. Students who come from low income families also have a better chance of receiving grants.
If the student’s parents earn more than £25,000 per year, they will receive less. These rules are set with the expectation that higher income parents will make contributions to the student’s tuition, although this is not always the case.
Maintenance loans are extended based on the following criteria:
- Your age (if you are over 25 years of age, there are additional rules for your income and partner’s income)
- Household income of your parents
- Where in the UK you choose to study
- Whether you will live at home or away from home while attending uni
- Whether your parents have any other children in uni while you are attending uni (which reduces household income calculations by £1,130 per additional child).
Unfortunately, even the maintenance loan is not enough to cover the costs of rent, utilities, food, and other living expenses.
Students are expected to supplement their maintenance loan through parental support, part-time jobs, and grants.
In order to properly tackle debt, we must first understand the repayment terms, interest rates, and most importantly, how to eliminate debt. Use this guide to help you eliminate stress and start living again!
Handle Your Student Loan Debt First
How is student loan debt unique from other types of debt? Student loan debt carries special rules set by the government. Aside from that, there are consequences that impact your credit and the way you live if you don’t handle it properly.
What is Student Loan Debt in the UK?
Your student loan debt consists of your maintenance loan and tuition fee loan. While student loans carry high interest rates, there are certain advantages that make them different from other types of loans.
Minimum Salary for Repayment Requirements
Students who started uni after 2012 will start repayment once they earn an annual salary of £21,000 (£17,355 for students who started uni before 2012). Unfortunately, most post-graduate salaries start at less than £21,000 per year, which means that it may be a while before you actually start repaying your student loan.
The agreement provides that repayments must start once students start more than £21,000 per year (more than £17,355 per year for graduates who started uni before 2012). Most postgraduate jobs salaries start below £21,000 per year, which can further delay your requirement to make student loan payments.
Repayment Amount Increases with Salary Increase
As your income increases, so will your payments. If you earn over £21,000, you will owe nine percent of earnings over £21,000. Once you have a high-paying job, student loan debt and other student debt is no longer a huge concern. Be sure to check out our top tips to stay focused during your first year of uni to improve your chances for high grades and an awesome job!
Repayments Stop During Unemployment
The circumstances surrounding student loan repayment are unique because they factor in your financial situation when determining your ability to pay.
Because repayment terms are closely tied to your earnings, your repayments will stop if you either become unemployed or earn below £21,000. Once you start earning more than £21,000, your repayments will be due. If only all debt repayment plans could be so easy!
Student Debt Elimination After Thirty Years
The chances of paying off your entire student loan before 30 years from are unlikely, unless you enter a high-paying job right after graduation. Otherwise, the remaining debt is eliminated 30 years after your graduation date.
With the soaring rates of student loans, experts predict that the majority of students are highly unlikely to ever fully pay back their loans.
Problems with UK Student Loan Debt
Even after you sign the agreement, the terms can still change at any point. The government has included a clause in the ‘Terms and Conditions” of student loans that allows for changes to the agreement at any time after signing the document.
Likelihood of Employment and Repayment
As inflation goes up, so does the likelihood of securing a post-graduate job that pays over £21,000 upon graduation. Therefore, it is likely that student loans will be paid off much quicker than prior years.
What Happens If You Don’t Pay Student Loan Debt?
There has been a steady increase of UK students living abroad and defaulting on student loans.
Recently, the government threw out a petition by UK students opposing a freeze on the student loan repayment threshold. In response, some UK graduates moved abroad in an attempt to opt out of the student loan repayment system.
Aside from being unethical, relocating for the purpose of avoiding student debt could also get you into hot water with the government.
If the government determines that students are relocating or engaging in other evasive practices to avoid repayment, the government can take action in the form of sanctions or extreme cases, prosecution.
Remember, you have to earn a minimum salary before you are required to substantially pay off your student loan debt. Be proactive in seeking gainful employment, and you will have a great job while being able to pay off student loan debt.
Once you’ve got a handle on your student loan debt, what about the other types of debt?
Not All Debt Can Hurt Your Credit
Debt is often the source of frustration and stress, but you still need some debt to build your financial future. Why do you need some debt?
- To establish credit rating: Your credit score is calculated by demonstrating your ability to borrow responsibly and pay on time.
- Qualify for significant purchases like a mortgage: Lenders will be hesitant to approve a mortgage for individuals with little or no credit. Lenders want to be sure that you demonstrate the ability to borrow money and repay debt responsibly.
- How do you use debt to your advantage? Pay on time, and if you can afford it, pay your balance in full each month. This demonstrate responsible spending and timely payments, setting you up for larger credit lines and higher credit in the near future.
Not All Debt Is Equal
Certain debts require urgent attention, while others require careful monitoring and repayment. Either way, take steps to repay all of your debts as soon as you can.
Besides student loan debt, there are other debts you can incur at uni that can have unexpectedly serious consequences such as delay or prevention from graduation.
Did you know that short term loans for books for 50p per hour can add up to a startling £12 per day? Your uni could also prevent you from graduating due to negative credits or administrative library fines. Do not ignore these bills. Pay university fees sooner than later.
Routinely monitor your student accounts to make sure you don’t have any overdue charges or fees. First, check with student services for any outstanding print costs. Next, review your account for overdue library items. If you have the unfortunate situation of fines that have racked up sky high, then speak with Student Support or the Head Librarian for ways to manage or write off the debt.
We’ll let you in on a secret: some universities will allow students to pay half the debt to avoid outrageous library and administrative debt. If you’re in this unfortunate situation, take advantage of all of your options.
You feel anxiety as your student bank account balance keeps going down but you still have bills to pay. If your bank account goes negative (below zero) you could be faced with extremely high overdraft fees. Banks charge a daily fee for overdrafts plus interest and deduct it from your bank account.
If you have a student bank account, take a moment to make sure your bank account has interest-free overdraft protection. An overdraft protection plan allows you to spend more than you have in your bank account without incurring additional fees. You will be able to pay it back after you graduate.
Most student accounts include interest-free overdrafts, but be sure to check with your bank for details. An overdraft protection plan on your bank account allows you to spend more than you have in your account. Normally, you won’t pay it back until graduation, and the payment is usually interest free. Depending on your credit score, your overdraft limit can range from £1,000 to £3,000.
Upon graduation, your student account will convert to a graduate account. There will be no overdraft for three years. The amount available for overdraft will go down annually as the payoff time draws closer.
To avoid fees, including late payment fees, review the terms of your account to find out what happens when your account converts to a graduate account. Remember, when setting up your graduate account, you can choose a different bank than your student account.
Credit Card Bills
As we mentioned earlier, credit card debt can boost credit rating if you make timely repayments and minimize carrying a balance. A word of caution: be sure you make your payments on time, otherwise credit cards can cause more harm than good.
Open credit cards rather than store cards, which just encourage you to spend for the sake of discounts at a specific store. Not only do store cards encourage bad spending habits, they also have higher interest rates (generally 20% or higher) than most credit cards. Soon, you are left with fees higher than the small discount you received for opening the store card account.
In the ideal situation, you will be able to pay your balance at the end of each month. Otherwise, pay as much as you can on top of the minimum payment to minimize interest from piling up. Also, not paying on time could negatively impact your credit, so make your payments on time.
When you move out on your own, you have to pay for utilities at your flat or house. Utilities generally include water, gas and electricity.
These expenses must be paid on time, or could be sitting in a dark room with no electricity. Aside from ruining your credit score, you could also end up in court. Look for student accommodation to rent that includes utilities.
If you are sharing a flat or house with others, sure that your housemates are responsible. If your name is on important documents, such as lease agreements and bills, you are liable for all of your housemates. Make sure that everyone is on the same page with paying rent and utilities on time. Selecting the right housemates is essential to having a safe, fun and productive life at your new home away from campus – here’s what to look for in selecting the right housemates.
Aside from basic necessities, you may be able to save on your TV license if you are a qualifying student.
Full time students in the UK also benefit from tax credits. All full-time students in the UK must apply for the council tax exemption.
If you fall behind with rent or utilities, try to pay off the balance in a few affordable installments. If you fail to respond, your landlord can take legal action against you. Whether its rent or utilities, explain the situation and make arrangements to pay off what you owe.
Electricity and gas bill companies also allow you to make payment arrangements if you fall behind. Keep in mind that utility companies can also take legal action if you fail to respond and make payment arrangements.
Payday loans give you fast cash at with extreme interest rates and fast repayment terms. While they are easy to get, they are seen as a payday advance with the expectation of repayment within one month. Payday loans are not only financially dangerous, they are also prohibited from advertising online. Also, beware of private companies that deliberately target students by offering funds to supplement student maintenance loans. Avoid these companies as much as possible, because they have high interest rates and offer no repayment concessions to students.
Be careful – payday loans charge high interest rates along with additional charges for late and missed payments. If you are having trouble with keeping up with your payments, get expert advice based on your financial situation.
Students often turn to friends and family for loans during tough financial time. To avoid miscommunication, set clear terms about when and how you will pay off the loan.
If you run into problems, communication is key. Let them know that you owe them and intend to pay them as soon as possible, then make good on your promise straight away. Let your friends and family know that you can be trusted, and show your appreciation by promptly repaying all loans.
Although the government assumes parent contributions for education up to £5,372 a year, your parents may not be able to afford making a contribution to your education. In both scenarios, don’t take advantage of your parents. Spend wisely, make the most of the money and pay them back if it’s a loan rather than a contribution.
All in all, it might seem like you will never get out of student debt, but if you take the right steps, it couldn’t be further from the truth. Use this guide to making the right choices to avoid student debt and save money.
Now that you have a better understanding of student debt, you can take steps to get it out of your life. Start with a plan in mind. Remember, time is on your side!