Everyone in the UK is aware of roughly what a student loan is. Given how much going to university can cost, there are very few people who can afford further education without taking out a student loan. But student loans differ from normal consumer credit in several ways, and the repayment system can be quite confusing regardless of whether you are currently a university student, you’ve just graduated and you’re looking at your first salary payslip or maybe you’re a parent and you’re concerned about how much it’s going to cost if your child goes to university.
We have tried to compile and simplify as much information as possible to help you understand what a student loan is, how repayments work and what good debt is.
As the majority of people across the UK cannot afford to attend university with savings alone, a student loan is designed to allow students the financial tools to access university.
The actual loan amount you are entitled as a student varies massively depending on your parents’ salary, where you attend university, what course you’re studying and how financially independent you are. Typically, students at London universities will have a larger student loan than those outside of London because the general living costs in London are greater.
For example, if your course costs £9,250 (the current maximum annual tuition fee to attend university) and your parents’ combined salary is £50,000, you would be entitled to a maintenance loan of up to £5,905 per year to help you cover your living costs. However, a student in the same situation whose parents have an annual income of £35,000, would be entitled to a maintenance loan of £7,884. There are various calculators to help you estimate your maintenance loan, but you will only find the true amount you are eligible for once you submit your application.
Additionally, most students will also receive a tuition loan which covers the cost of the course.
Your student loan only becomes payable once you earn over a certain income. At the moment, there are three different thresholds depending on when you attended university and whether you are repaying a postgraduate loan.
For example, if you started your undergraduate course after September 2012, then you will only start repaying your student loan once you earn an income of over £2,214 per month before tax deductions. This works out to an annual salary of over £26,500.
The student loan repayments are taken automatically along with your tax and national insurance deductions, so you don’t have to consciously make an effort to meet the repayments. You can however make additional repayments to reduce the total amount you owe and there are no penalties for doing so.
The concept of good debt might seem strange to a lot of people because the general consensus around debt is that all debt is bad. But that is not necessarily true. While we should try to avoid getting into debt where possible, loans such as student loans and mortgages are not to be bundled in with credit card debt and unpaid bank loans.
A good debt is a debt that can be seen as a financial investment. A mortgage, for example, helps you to procure a house which is a large financial asset. As long as you keep up with your repayments, you will own the house at the end of your mortgage term and, usually, houses increase in value so you will eventually make a profit if you sell it.
A student loan can be considered a good debt because university graduates tend to enter higher paying jobs than their undergrad counterparts. It’s not a guarantee, but having a degree usually sees a graduate earn £10,000 more than someone without a degree. In this way, a student loan which supplies someone the means to attend university is considered a financial investment, as you are likely to reap a higher reward than if you didn’t attend university, and therefore a student loan can be seen as a good debt.
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