Monday mythbusting: five lessons on student loans
Almost half of UK students feel like their degree hasn’t been good value for money this year, a new study has found.
The report by the Higher Education Policy Institute thinktank surveyed 10,000 full-time graduates with 44% saying they felt their courses offered poor value when compared to 2019 – despite the pandemic disruption that year.
It’s believed that twice as many students have voiced their concern amidst claims that universities mislead them about how much in-person teaching they could expect this year.
However, despite the feeling of disappointment almost a fifth of undergraduate students plan to go onto further education such as a masters degree or postgraduate.
A new report from education charity the Sutton Trust revealed that the number of graduates, particularly from low-income families, going onto their masters has risen from 6% to 12.9% thanks to the introduction of government-backed post-graduate loan schemes in England.
With university education at the forefront of the nation’s minds and with students preparing to start their courses in September, we’re dedicating this week’s Monday myth-busting to five misconceptions surrounding student loans.
Whether you’re considering how you’re going to fund your first year at university or your masters degree, we’ve got advice for you.
Myth 1: You’ll repay student loan debt for your entire life
According to industry figures, the average student loan debt currently sits at £35,000. While it may seem like this could be impossible to repay – especially as students grow ever more concerned about graduate and entry-level positions during the pandemic – don’t worry.
Regardless of the amount borrowed, as long as your student loan is a government-backed loan and not from a private lender, they’ll be wiped after 30 years if you went to university after 2012 and 25 years if you went before 2012.
According to Money Saving Expert many people earning over the £27,295 per year salary threshold will never repay their student debt within 30 years and lower earners won’t repay much at all.
Myth 2: You’ll be expected to repay your student loan as soon as you graduate
You won’t be expected to start repaying your loan until the April following your graduation. This means that the first year of life after university is payment-free. If you drop out of university, you still won’t repay until the following April.
What’s more, no matter how much you borrow you won’t be expected to repay your student loan until you’re working in a job that earns more than £27,295.
The payments are taken automatically from your salary each month. However, it’s important to keep an eye on your payslip every month to make sure that you’re not being overcharged or paying back too early.
Myth 3: A student loan will affect my credit file
Unlike other types of borrowing your student doesn’t affect your credit rating. Some lenders may ask if you’ve had one, like a mortgage company performing an affordability check, but the loan won’t show up on the report itself.
This is because student loan repayments are taken from your wages in a similar way as taxes.
However, it’s important to be aware that while a student loan won’t appear on your credit file and affect your ability to borrow if you miss any payments and fall behind on what you owe this will affect your credit score for seven years.
Myth 4: Student loan repayment rates can change
When you leave university you only begin to repay when you earn more £27,295 every year, or £2,274 a month, then it’s fixed at 9% of everything you earn above that.
So, for example, if you earn £28,000 in a year, you’ll pay £63.45 each month. This is because £28,000 is £705 above the salary threshold and 9% of £705 is £63.45.
There can often be a concern that you could find yourself shelling out large amounts of your wage every month on your student loan but it’s important to remember that it’s typically only higher earners who will find themselves paying a substantial amount each month.
The whole idea of student loan repayments is that it’s a graduate’s contribution and those who gain the most financially out of university contribute the most.
Myth 5: You can write off student loan debt
While it’s the case that you can write off the majority of unsecured loans, such as a bank loan, through a debt solution such as an Individual Voluntary Arrangement (IVA), you can’t write off a student loan through insolvency.
That doesn’t mean to say other support isn’t available if you’re struggling with other debts. If you begin to fall behind on any repayments, it’s important to seek professional advice as soon as possible to get a better handle on your monthly budget and ensure you are able to keep up with your student loan commitments.