It’s A-level results day and we hope that everyone has done well and as plans are being made possibly for university we thought it might be helpful to resend some details on Student Loans.
University is always going to be at least partially a financial decision both for prospective students and their parents, or whoever they rely on financially.
Calculating the rising total bill for tuition fees and cost of living for a degree course can make university seem like an impossibility for some. But it’s essential that all involved carry out proper research into the cost of higher education before deciding about the future, rather than letting sensationalist reporting in the media surrounding student debt scare them away.
Firstly, it’s crucial to remember that the cost of higher education never needs to be paid all in one go. Once a university place has been secured, tuition fees are paid automatically by the Student Loans Company for those who have taken out a student loan, and loans are also available for living costs.
Importantly, no student will need to start repaying their loan until the April after they graduate at the very earliest. Even then, only those students earning above £25,000 per year will be required to start making payments (the threshold increased from £21,000 to £25,000 in April 2018). Under the system, a graduate pays 9% of everything they earn annually over the £25,000 threshold. Someone earning £26,000 would therefore pay 9% of £1,000, or £90 over a whole year.
If a graduate’s earnings drop below the threshold or they find themselves out of work, the payments stop automatically. As student loan repayments are collected through salary, there’s no need to worry about making them on time or debt collectors chasing.
The system has been designed to ensure only those who can afford to pay back their student debt after graduating will be required to do so. If there is still outstanding student debt thirty years after graduating, this will be cleared no matter how much is still owed. As such, it’s expected that most graduates won’t repay their entire loan plus interest within thirty years.
A student loan is not the same as a bank loan, and as such doesn’t appear on a credit file. The amount owed in student loan repayments will therefore not impact upon ability to apply for other types of loans or credit cards after graduation. The only time it may potentially come into play is in mortgage applications, where take-home income is considered in assessing whether repayments are affordable.
Interest is charged on the loan from the day the first payment is made until it’s repaid in full; whilst studying the interest rate that applies to Student Loans is RPI plus 3%. RPI from March is used therefore from September 2018 the rate will be 6.3%.
These are just some of the financial points which warrant consideration before making a decision about going to university. Each prospective student and the people they rely on financially will have individual circumstances to consider. The most important thing to remember therefore is to do your own research and make an informed decision about the financial facts and myths surrounding higher education.
As always, please do not hesitate to contact us if you have any queries.
Senior Financial Planning Manager