Six things no one tells you about your student loan

By | November 8th 2019

When you decided to go to uni, paying off your student debt probably seemed a long way away. However, if you’ve just graduated, it’s probably starting to seem a lot more real!

Tuition fees are the highest they have ever been, and most unis charge the maximum annual fee (reaching £9,250 per year in 2018/19). Higher tuition fees combined with the cost of living adds up to a lot. The average grad who has just completed a 3-year degree ends up with around £50,000 worth of debt. (www.savethestudent.org Jul 2017)

If you recently finished studying, you might just feel like you've got a bad deal. However, your student loan isn't like any other debt (www.savethestudent.org Aug 2018). If you are worried about paying it back, read our list of things that no one told you about your student loan - it might just put your mind at ease. 

  1. You won’t pay anything before you start earning a certain amount

If you started Uni on or after 1st September 2012, you will not have to repay your loan at all until you start earning above £25,716 per year. Many graduate jobs and early career salaries are below this figure, so it's likely to be a couple of years before you have to start thinking about paying it back. 

What's more, if you lose your job or take a position with a lower salary than £25,716, your student loan repayments will stop - no other loan company is that generous. 

2. You will only pay a small proportion of your salary back

Once you do start earning over £25,716 per year, you will start having to pay back your loan. Fortunately, however, you will only have to pay 9% of the money you earn above that amount. 

Say you get a promotion in your job and now earn £28,000 per year. As a result, you will be earning £2,284 over the threshold. You’ll, therefore, pay back 9% of that extra money - which works out as £205.56 per year, or £17.13 per month. Put like that, it seems pretty do-able. 

The student loan is set up in such a way that it will be cancelled in 30 years' time. Some people will never consistently earn enough to pay off their loan - so don’t worry if you don’t hit the £25,716 income figure that someone will come knocking at your door!

3. It’s different to a traditional loan

Your student loan is taken out of your pay before you even receive the money. As a result, you never have to think about actually paying it back - just like your regular taxes (unless you go self-employed). 

Think of the student loan as a kind of tax for people who have been to uni. The fact is that people who have got degrees tend to earn more than those without them - so you could argue that it's only fair for graduates to pay a little more. 

4. It will be cancelled in 30 years

The student loan is set up in such a way that it will be cancelled in 30 years' time. Some people will never consistently earn enough to pay off their loan - so don’t worry if you don’t hit the £25,716 income figure that someone will come knocking at your door!

5. It shouldn't affect your future money plans

Whether you hope to take out a mortgage someday or get a loan from the bank, having student debt should not prevent you from being able to access those funds. Millions of people have student debt in the UK - banks and credit rating agencies know this and don’t include it in your credit score. However, you do need to bear in mind that the monthly payments will be taken into account when financial institutions calculate affordability on a mortgage, loan or new credit card(affordability is basically figuring out if you can afford to repay the money you’re asking to borrow). 

If you have them, keeping up repayments on credit cards or other loans is really important so you can call the Student Loans Company and request a break in repayment of your student loan (www.gov.uk May 2019) to address higher interest / higher priority debt first. It’s not always granted but may be in certain circumstances – it’s certainly worth a try!

6. Moving abroad won't make it go away

You may have heard that living outside of the UK means you don't have to pay back your student loan. This is a bit of a myth, however - the Student Loans Company has good links with other organisations abroad and will do their best to track you down and collect the money from your salary - even if you are living permanently outside of the country. 

What’s more, you may get stung with overdue payments when you return. It is, therefore, most straightforward to let the Student Loan Company know what you are doing and schedule repayments wherever you’re living. 

Don't stress about it

The fact of the matter is that if you choose to go to university, you will almost certainly come out with debt. Fortunately, the student loan is unlike any other kind of debt. And, since it is taken out of your salary at source, there’s not much to address from an admin/organisation of repayment perspective.

So, rather than stressing about it, focus on the money that you do take home and think about how you can make the most of it. 

Bó is part of National Westminster Bank Plc (“NatWest”), registered in England and Wales (Registered Number 929027). Registered Office: 250 Bishopsgate, London, EC2M 4AA. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. NatWest is entered on the Financial Services Register and its Register number is 121878. The Financial Services Register can be accessed at www.fca.org.uk/register. NatWest's registered VAT number is GB 243852752.

Bó is protected by The Financial Services Compensation Scheme (FSCS). Read more here.

* If you have accounts with Bó and NatWest, the maximum you would be able to claim across all accounts combined is £85,000.

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