Debt is often described in negative terms. But borrowing money, or ‘taking on debt’, isn’t necessarily a bad thing. Manageable debts, that you can comfortably pay back over an agreed period, are often necessary in order to take that next step in life.
It’s only when debt repayments become unmanageable or unaffordable that debt becomes a problem.
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For many people, a student loan is the difference between being able to go to university or college and not. And under new government legislation, you will only start to pay your loans back when you’re earning more than £17,495. But failure to make repayments when required can cause serious debt issues.
Normally payments will come straight from your wage via the PAYE system or by self-assessment if you’re self-employed.
How are student loan repayments calculated?
As of the 2017-2018 tax year you typically have to be earning more than £17,495 before you need to pay back what was borrowed.
After this you will be expected to pay back 9% of what you earn over this amount, after deductions, so this can come as an unexpected extra bill at the end of each month.
Moreover, if your annual earnings are below this threshold, but your weekly or monthly earnings put you temporarily above the threshold in a given period you may need to make a loan repayment.
What happens if I don’t make a student loan repayment when required?
If you fail to make your repayments this can cause serious debt problems. By law when taking out a student loan, you have agreed to repay this to a certain financial schedule according to your circumstances.
The Student Loans Company has the right to accelerate your debt. This means they can get a court to order your debt to be paid in a single instalment, including interest. This will typically be a significant figure.
Ways to keep on top of student loan debt
- Check that the correct deductions are being made via PAYE
- If you’re self-employed, use an online calculator to estimate what you’ll owe based on what you think you’ll earn and set aside this amount. Doing the calculation as soon as possible will give you more time to save up
- Engage an accountant to prepare your tax return to ensure you pay the correct amount.
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