Paying back student loans
When the 'free' money gets costly.
Repaying student loans is a necessary evil once you've graduated. Fortunately, payback time doesn't always have to be painful. The interest rate on money borrowed from The Student Loans Company (SLC) is generally based on the rate of inflation, so if you can't afford to start paying it back straight away there's no need to panic. You won't be stuck with runaway interest charges and a debt that grows steadily more enormous with each passing year, unlike many other loans that charge higher rates.
When do you start paying?
You won't start paying back your loans until your gross earnings are in line with the annual threshold of £15,000 a year. This means if you're earning:
- £1,250 a month; or
- £288 a week.
If you earn money from savings or investments, this also has to be taken into account as part of your total earnings if it is over £2,000. If you're self employed or have received income in any other way you'll have to declare this in a Self Assessment form. This will determine your tax, National Insurance and student loan repayments for the year.
Loans from 1998 and after
The current version of the Student Loans Scheme (the student support scheme) lets you borrow more money than ever before, but also wants it back from you sooner. As soon as you start earning more than £15,000 per year, they want their pound of flesh. They take 9% of any income over this amount, until the loan is repaid (not 9% of your total income). Unfortunately, whether you like it or not it will be taken out of your wages by your employer and the HM Revenue & Customs as you earn it through the Pay As You Earn (PAYE) system. If you took out a loan before 1998, different rules apply.
If you're due to start paying your student loan back on or after April 2012 you now have more choice over how you repay them. Graduates will have the option of taking a break from their loan repayments for up to five years. If you started university in September 2009, you'll need to be on a course lasting three or more years to be eligible.
These are not from the SLC. Various high street banks will allow students to convert their overdrafts, and increasingly their credit card debts, into graduate loans. The terms and conditions vary from bank to bank, but the overdraft is usually converted into a moderate-to-low interest loan when you're earning regular money.
The interest rate is usually a fixed one, and regular payments of a set amount are taken out of your current account every month. It's worth shopping around for the best deals, and you don't necessarily have to convert an overdraft with a particular bank into their own graduate loan scheme.
Information on your student loan will soon be included in your credit file. This means that if you miss a payment to the student loan company it will show up as a black mark on your credit rating, making it more difficult to get credit. The information is expected to be included in credit reports towards the end of 2009.
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