University is costing more than ever before. Tuition fees have risen now above £9,000 – it was little more than a decade ago when tuition fees were a relatively new thing. Couple tuition fees with living costs, and it is a tough time to be a student. With rising house and rent prices, it is not out of question to suggest £20,000 a year is an amount required. For the vast majority of people therefore, a loan will be required to help cover the costs.
As our guide shows, there are various ways to fund University. In most cases, a student will use both a tuition fee loan, and maintenance loan. In the process of the three years, they will likely create a debt of around £45,000. This is enough to put many prospective students off the idea of University. However, as this article shows – it really isn’t as bad as it sounds. Read on for all of the information on the repayment of the student loan – and we’ll bust some myths in the process.
Please note this page is no longer monitored, and could therefore be out of date at any time. We recommend checking the following link for current information regarding student finance, fees and other relevant information: https://www.gov.uk/student-finance/new-fulltime-students
First of all, you won’t need to make any repayments until your income is over a certain level each year. At the time of writing, this level is £22,000, though this is subject to change. Most graduate jobs will pay over this – meaning until you have secured a job after University, there will be no need to repay anything. The second you graduate you won’t suddenly need to make huge repayments! The actual amount that you will repay is dependent upon the amount of your income.
If you’re employed, the repayment will be deducted from your income on a monthly basis by your employer. Therefore, you won’t ever see the money. Your employer will handle this process. You can see this as an additional ‘tax’. The same as your National Insurance contributions. Seeing this entirely as a ‘Graduate Tax’ can help you understand the benefits of University.
Here is an example of the repayments. You will repay 9% of your income over £21,000 per year. Therefore, someone earning £25,000 a year will repay based on the £4,000 difference between the threshold and your wage. This would work out at just £30 a month – which is quite reasonable. Self-employment has a different system, linked to HMRC. If at any time your income drops below £21,000, your repayments will stop and only restart when you are back over the threshold.
After 30 years, any outstanding balance on your loan balance will be written off. Unfortunately, we predict that this policy will change within the next few years. But in the off-chance that the Government do actually give students a break, then there is always a chance this will continue.
As for interest rates – your interest will be charged from the first day you take out a loan, until it has been repaid in full. While studying, and up until the April after you leave University, you’ll be charged an interest rate of the Retail Prices Index plus 3%. Essentially, this means you’ll be charged interest at a rate of inflation, as well as an extra 3%. Again, this could change at any point.
While there is no doubting that University is an expensive experience, hopefully this article can ease some of your fears. While you will rack up a huge debt, the repayments for this debt are very fair, and certainly achievable. You can see it as an investment. Don’t let the potential debt put you off. University is definitely an experience worth the money, and in the long-term, can pay off well for you. Money Saving Expert have an excellent article which goes into more detail, you can access it here.
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