While you’re at university, it’s easy to slip into the habit of spending money you don’t have. For many, it’s absolutely necessary to borrow money to fund the cost of study and living. If you have no debt when you leave university – you’re one of the lucky ones!
There is more than one type of debt, however. A Government Student Loan is going to have an impact on your future, but it’s very different to most other kinds of debt.
Student Loan versus other debts
As a graduate, you will not be expected to repay any of your Student Loan until your annual income is £21,000 or higher. At that point, you will pay 9% of what you earn above that.
See here for more details:
https://www.gov.uk/student-finance/repayments
Interest will be added to the outstanding balance even if you are not making payments. However, the interest rate is typically a fair bit lower than on most other types of debt. Commercial debts – racked up on credit cards, loans or overdrafts – can charge quite a lot more, so it’s important to address these debts as soon as possible.
Even if you have one of the interest-free overdrafts designed for students, that overdraft will revert to charging interest after a set period of time.
Think Debt Advice also have further advice on dealing with debt problems, should you need it to look into further solutions.
Should I worry about my student debt?
You shouldn’t ignore it, but you shouldn’t worry that you’ll have to repay it all in one go. However, remember that the more you earn above £15,000, the more you will repay every month.
Should I ‘overpay’ my debts?
Nobody likes paying interest, so the sooner you pay back a debt, the less interest you’ll pay overall. You can do this by making ‘overpayments’ every month towards your debts, although check that there isn’t an early repayment fee – which could cost you more than you expected.
Interest-free debt – or low-interest debt that is growing more slowly than inflation – will actually be worth less, in real terms, next year than it is today (unless we’re in a period of deflation). If you have ‘spare’ money to spend on a monthly basis, it makes sense to overpay your high-interest debts before you focus on debts that are charging less.
Limiting debt
There are two clear ways to limit the amount of debt you take on at university – earn more and spend less!
Ways of increasing your income could include the following:
* Get a part-time job.
* Work in the holidays.
* Find out if you’re eligible for a bursary.
Similarly there are lots of ways to spend less money while at university. There are often offers and discounts only available to students, including discounts on clothes and travel, entry to attractions and places of interest, and so on.
How long will it take to pay off my Student Loan?
That really depends on what you earn and how much you borrowed. Eventually, your Student Loan will be written off if you don’t earn enough to make the payments, or if you don’t repay the full amount within a certain amount of time.
Loans issued before September 2006 will be written off when you reach 65, while loans issued after September 2006 will be written off 25 years after the first April after your graduation.