When you’re in your last year of university, you may be starting to worry about the amount of debt that you will have to pay back when your course finally comes to an end. This can cause sleepless nights for many, however the truth is that student loans aren’t anything to be afraid of.
In fact, many people never pay all of their loan back at all, and the amounts that they do pay are manageable. This guide will help you to deal with some of the questions that you might have about your loan, and this should mean that you are able to enjoy the rest of your course without the stress of your financial situation detracting from the experience.
What you pay back isn’t set in stone
Once you leave university, you will be sent a statement to say how much you owe on your loan. Depending on when you started your course, this amount will vary, and interest might be added on if that was in your terms. However, although your course has a price tag of a certain amount each year, this doesn’t mean that it will actually set you back that amount.
The amount that you pay back is based on how much you earn once your course is over. If you earn under a certain amount – which is usually between £15,000 and £21,000 depending on the terms of your loan – you won’t have to pay anything back at all. If you earn more than this, your payments will represent a portion of your income over this amount. This means that you should never find that the amount you need to pay back is unmanageable.
How long will it take me to pay back my loan?
If you don’t earn very much over the threshold, you might find that your annual payments don’t even cover the interest that is added onto the amount that you owe. However, the good news is that you will not be in debt for the rest of your life, as the amount that you owe is wiped clean after a certain number of years.
For students starting their courses at the moment, this figure is 30 years – meaning that the average 21 year old graduate will be debt free before they reach their mid 50s – even if they haven’t paid the full amount back.
What happens if I can’t make the payments that are required?
If you know that you have a loan to pay back, there is a chance that you might be starting to worry about what will happen if you can’t make the payments that are expected based on your earnings. However, this is nothing to worry about, as the amount that you owe is taken from your pay packet before you even take it home, so you will never see the money in the first place.
This means that you don’t need to be concerned about missing payments, and you will never be in a situation where you are in arrears with your loan. The only slight difference in this system occurs when you are self-employed – and in which case your repayments will be worked out when you submit your tax return at the end of each financial year.
For this reason, if you are registered as self-employed, it is important that you put money aside each month to cover all deductions such as national insurance, tax, and student loan repayments.
What happens for grants or scholarships that I was awarded?
If you were ever awarded things such as grants or scholarships while you were completing your course then there is no need to worry, as these are amounts that you don’t need to pay back at the end.
If you living in a low-income household it is likely that a larger part of the money you were awarded was issued as a grant rather than a loan, which means that the amount that you need to repay will be lower. It is important that you understand how much of the money you are given you will need to pay back at a later date.
How will this debt impact my credit score?
When you graduate, you may feel as though the whole world is at your feet, and you will probably want to start doing things such as buying a house or a car, or considering other kinds of financial commitments. In order to be able to do all of these things, it is vital that you have a positive credit score, or you may struggle to get finance from lenders.
It is common knowledge that debt affects your credit score negatively – however student loans do not count towards your credit score in any way. This means that there is no way that taking out such a loan can have a negative impact on your financial future.
Will I be able to get a mortgage?
While a student loan won’t affect your credit score, it could still have an impact on your ability to get a mortgage – but only based on an affordability check. This type of check takes into account all of your income and outgoings, and works out the level of mortgage repayment that you could afford.
It is unlikely that your student loan repayments would be large enough to have any kind of major effect on this check, however it is always worth considering if you are trying to work out the likelihood that a bank or other lender will give you a mortgage.
Ultimately, although there is no getting away from the fact that your student loans count as a debt, there is no need to worry, as they will not have any kind of significant impact on your financial future. Basically, the amount that you pay back depends on how much you earn – so if your course wasn’t worth the money, you will never pay it back.
This means that you should try not to worry about your loan repayments, and instead focus on putting your efforts into improving your career prospects after graduation.