Top Ten Myths of Student Loans and their Repayments
Posted in Undergraduate Finance Advice
Whether you’re a current university student or you’re just about to leave college and are considering higher education, it’s likely that you’ll be concerned about one thing – the ins and outs of student finance.
The world of student loans and repayments is increasingly becoming a difficult one to understand. It wasn’t that long ago when university education was free, yet this year saw the introduction of new higher tuition fees wrapped up within a host of wider changes. All this has unfortunately (and predictably) resulted in a lot of confusion and a fair few myths.
It’s time to battle against the misconceptions and provide you with the information that you really need to know…
1) “Student debt will affect your credit rating”
You’ll probably want to start thinking about mortgages and the like in the not too far and distant future, so the idea that your student loan can have a negative impact on your credit rating can be a real concern.
However, debt resulting from your student loan is not viewed in the same way as other commercial debt by the banks, and it won’t affect your credit rating. So whether you want to get on the property ladder straightaway or leave it a while, this isn’t something that you need to worry about!
2) “You must start paying back your student loan as soon as you graduate”
Under the new system (post-2012), you’ll only start paying your loan back once you’re earning over £21,000 a year. Previously it was £15,000, so this is actually an improvement in terms of repayments!
Each month, you’ll pay back 9% of what you earn over £21k. So if you’re earning £25,000 a year, that’s £30 per month. It comes straight out of your pay before you receive it, so you probably won’t even notice it. For more example repayment figures, check out this table.
3) “You can’t go to university unless you’re rich”
As with many things in life, having money can help, but it shouldn’t – by any means – be a factor for getting a university education! Firstly, it’s worth noting all UK students are eligible for student loans to cover the tuition fees and basic living costs of university. These don’t have to be repaid until you start earning a decent salary.
There’s also help available for eligible students in the form of scholarships, grants and bursaries. In short, there’s plenty of support out there, so don’t let the thought of money put you off.
4) “A student loan will put you in debt for life”
It’s easy to see why students think they might be paying their debts off forever, but this just isn’t the case. Under the new student finance system, any remaining amount on your student loan is written off after 30 years.
5) “All undergraduate courses cost £9,000 per year”
It’s true that universities can now charge up to £9,000 per year, but the reality is that many have chosen not to. In fact, in some ways, it’s created more competition which you might be able to take advantage of.
In any case, the majority of institutions are offering bursaries and scholarships to help with the cost, so this should never be a reason to put you off getting a degree where, and in what, you want to study.
6) “There are no graduate jobs, so going to university and getting into debt is pointless”
Yes, the graduate job market is tough. But even though a degree isn’t a direct ticket to the job of your dreams, it’ll certainly boost your employability and show employers that you’ve spent the past three or four years learning and honing your skills.
There’s also a very good chance that the economy and job market will have improved by the time you graduate, so getting a degree in the meantime could be a very wise move.
7) “Students in Scotland, Wales and Northern Ireland won’t have to pay the new fees”
Before the recent changes in student fees, Scottish students studying in Scotland didn’t have to pay for their degree course. Sadly though, the Scottish system also changed in September 2012. Universities there can now charge up to £9,000 per year.
Welsh and Northern Irish students will pay no more than £3,465 a year, though students from England going to study there may be subject to the full £9,000 tuition fees.
8) “Current students will have to pay the increased fees”
If you started university before 2012, you won’t be subject to the new student finance system. In other words, you won’t be paying anything close to £9,000 per year, your payments will work in exactly the same way as they did before, and you’ll start repaying your loans once earning a salary of £15,000.
9) “Postgraduate course tuition fees have also gone up”
Postgraduate courses work under an entirely different system, and for the time being, there are no increases in the cost. It goes without saying that some universities charge more than others, and we can’t comment on what might happen in the future, but this isn’t something that potential postgrads need to worry about just yet.
10) “You should save up and pay off your student debt as soon as possible”
It can be tempting to want to pay off your student loan as soon as you graduate, particularly if you get a good job and are earning a decent income.
However, if you left university after 1998, it’s not going to be the smartest move for most people. Student loans come with exceptionally low interest rates, and putting any extra cash into a separate savings account could be a much better long-term option for making your money go further.
It probably won’t be long until you need to take out a commercial loan at much higher interest (such as a mortgage), so just make the minimum student loan repayments to save borrowing later at a much higher cost.
Hopefully this has helped you to get the facts straight and have a clearer picture of how student finance under the new system works. It might be a complicated beast, but it’s well worth knowing what you should be thinking about!
For more information on student finance, download “The Essential Student Guide to Finance”, a free ebook by Save the Student.