After secondary school, many students and parents alike face a dilemma. It’s every parent’s dream to send their children to a good university. But they may put it off if they can’t really afford it. Because well-known universities attract high-paying jobs, the UK government has come up with the initiative of student loans. These are loans meant only for students who want to pursue higher education.
What Are Student Loans?
Student loans are loans that individuals who wish to study further after primary and secondary education can take. They help students complete their studies and bag enviable jobs. A student need not worry about tuition fees, paying for books, stationery and living. The money takes care of it all. While it was introduced by the government for the first time, some private lenders are also coming up with cheap loans for those willing to go to university. Students start repaying only after they get a job, though interest starts right after the sanction of the loan. There are additional privileges for disabled and low-income persons.
Student Loans Myth busters
It’s important to bust myths and misunderstandings doing the round. For this, you’ve to get your facts right. Else, a golden opportunity may just pass you by.
- Cost and Price Are Two Separate Things:
With student loans being as high as £50,000, many students and parents are very doubtful whether they’ll be able to repay it after all. Add to that, headlines screaming “Living loans got bigger in 2017”, the risk factor got a massive boost. But, this fear is totally unnecessary. The price tag of the university is irrelevant in the case of student loans. What matters is how much you have to repay. Those who earn a lot repay a lot while those who manage only a less-paying job pay nothing or little in repayments.
- No Cash Isn’t Equal to No University:
You can go to university even if you don’t have cash in hand. Once you apply for a student loan, most lenders will directly pay the tuition fees. You’ll probably need a loan for living costs too if you aren’t living with family. Full-time students start repaying only in April (after they graduate), irrespective of what the course duration was.
- You Repay Only If You Earn Above £25,000 Per Annum:
Student loans work on the principle of ‘pay when you earn’. According to the government, those who earn more made the most of university. The less you earn, the less beneficial university was for you. Keeping this in mind, people who earn less than £2,083 (£25,000/12) a month pay nothing at all. If you exceed this income threshold, you’ll have to pay 9% of the excess. For example, if you make £30,000, it’s £5,000 above the minimum limit, so you’ll pay £450.
- Freedom From Debt On Repayment Or After 30 Years:
One of the facts of student loans is that you stop making repayments when either you clear the loan or after a period of 30 years from the April following your graduation. Whichever of these comes first. And if you never got a job with an annual income above £25,000, you won’t have repaid a single pound towards your student debt.
- Away From the Debt Collectors’ Chase:
Once you start earning, your repayment for student loans will be automatically deducted through the payroll like income tax. That means the salary you get in your bank account will be after deducting this monthly amount. You don’t need to have tension about debt collectors chasing after your life for the money. It also means that you have little choice in the matter and can’t escape the repayments.
- Interest ‘Above Inflation’:
There have been some major changes for students who joined any university in 2012 and later. Earlier, there was no ‘real’ cost to borrow money via student loans as interest rate was set at RPI (rate of inflation). Now a student has to pay interest as follows:
During the course:
RPI inflation plus 3% on outstanding balance which continues upto the first April after graduation
Earning £25,000 per annum:
RPI inflation accrues
Earning between £25,000 and £45,000 per annum:
Rise from RPI inflation to RPI plus 3% with an increase in earnings
Earning above £45,000 per annum:
RPI inflation plus 3%
This is the case for positive inflation (rising prices and standard of living). It doesn’t apply for deflation (falling prices).
- Accessible to Part-Time and Post-Graduate Students:
Student loans are not only accessible to full-time students but also to part-timers and post-grads. Part-timers are those who study for a few hours in the day and work at night. Or vice versa. Almost 40% of all undergraduate students are part-timers, thus lenders are offering loans to them as well. Post-grads are those who want to apply for a Master’s or Doctoral degree can get loans easily. They only need to repay if they start earning enough at the end of their course. Students can apply for loans upto £25,000.
- University Branding Makes No Difference:
If you aren’t already aware, universities charge approximately £9,000 for a full-time degree. This is only going to increase with inflation. Top universities charge the highest fees. But student loans come to your aid here. Whatever is the total cost including tuition fees, books and maintenance loan, you’ll repay a fixed amount every month depending on what you earn over and above £25,000 in a year. So much for branding! Keep in mind that the more money you borrow the more number of years you’ll be repaying it.
- Student Loans for Living Costs:
If your university is in another city, you’ll have to move and likely put up by yourself in the new city (in cases where hostel facility is unavailable). This is called living costs and includes food, books, travel and accommodation. You can get a loan for managing living expenses. They are credited directly to a student’s bank account in three termly installments. The amount of a maintenance loan depends on two factors- 65% guaranteed and 35% based on your parents’ income. So parents earning more are expected to fulfill this gap.
From the year 2016-17, full-time students above the age of 60 are eligible for maintenance loans. Students in the technical education field (construction, digital skills and social care) are eligible to apply from 2019-20.
- No Record on Credit Files:
For almost every loan like a mortgage, credit card or car loan, lenders assess your credit file for your credit history and credit score. This file contains all the information about the credit dealings you’ve had in the past and how you managed them. Student loans are not recorded on credit files, so there’s no risk of a bad credit score. Lenders will get to know that you have student finance only if you choose to tell them.