The best investment you'll ever make
Getting a tertiary education is definitely the best investment you can make in your future. Not only will you increase your chances of finding employment but, you’ll certainly enjoy the benefits of a higher income.
Many people who are about to enter university or a higher education institution are wondering whether it’s better to get a loan or pay for their studies upfront to avoid debt.
When it comes to student loans in the UK-one thing is certain; the way the SLC operates and handles loans and repayments needs to be reviewed and improved but, getting a student loan still remains the “cheapest” way of funding your studies.
A student loan costs very little in interest and thus allocating the money you were going to use to fund your studies to another, more beneficial use, such as a savings account, will see a greater return.
Students from low-income families
Students that come from disadvantaged backgrounds or low income families may also be eligible for a waiver-which is when the cost of tuition fees is reduced and a bursary or even a scholarship.
It’s usually more beneficial to go for a bursary because it will provide you with actual immediate benefit, possibly in the form of cash, rather than a waiver which may have no effect on how much you’ll repay in the future, unless you'll be a very high earner.
Are you eligible for a student loan?
To find out if you are eligible for any of these schemes you can check directly with the various course providers. You can also check to see what scholarships are available simply by running a Google search which will provide you with a number of websites dedicated specifically to providing information on what’s available.
How to get a student loan in the UK?
Getting a student loan in the UK is a fairly straight forward process and is done through the Student Loans Company (SLC), a governmental organisation.
In order to be eligible for a loan you are required to be a resident in the UK and qualify for an approved course or degree at a university or college that provides degree programmes.
Types of student loans available
As a full time student you will be eligible for a student loan that covers the full cost of tuition, a maintenance loan or a maintenance grant or special support grant depending on your individual circumstances.
For a loan that covers your full tuition fees, as with any loan, you will be required to repay this however, any grant awarded does not have to be repaid.
You can apply for a maintenance grant and loan which will help cover your living expenses while you’re studying. If you receive a grant it will reduce the loan amount you’ll be entitled to apply for by £0.50 for every £1 you receive.
You have to provide information regarding your household income and students living at home are eligible for less than those living on their own. You will be eligible to apply for a student loan of £9,000 and a maintenance loan of up to £8,009 per year if living in London and £5,740 everywhere else.
If you live with your parents during your studies you will be able to apply for a loan of £4,565 whether you live in London or elsewhere.
Shortcomings of student loans
Even with the maximum maintenance loan or grant you are still likely to require help from your parents to make it through.
You may also have to get a part time job to help pay for your expenses but, either way, strict budgeting is absolutely crucial to ensure you can stretch your money as far as possible and avoid having to borrow enter into more debt.
It’s important to note that if you are given a maintenance grant-which you technically never have to repay but, if you choose to quit your course of study, you will have to repay the grant in addition to the student loan you took out up to that point.
You do not have to borrow the full amount
If your parents can pay part of your tuition fees and possibly even all of your maintenance costs, you can apply only for the remainder of the tuition fees.
Live at home to avoid excessive expenses
This will mean that you will owe a lot less then the £50,000 that you would owe if you opt to take out the full amount for both tuition and maintenance.
In addition, part time students are also now eligible for a full loan towards their first degree but, are not allowed to apply for maintenance grants or loans.
How long will your loan approval take?
It takes between three and six weeks to process a student loan application so make sure that you apply early, should there be any delays or mishaps during the processing of your application.
Some interesting points to note about student finance
The interesting thing is that whether you choose a more expensive degree or one that is less expensive, you will still end up making the same monthly repayments.
If you were considering choosing a degree or institutions with lower fees to limit your student loan debt-you may want to reconsider in light of this fact.
Be this as it may, you will have to repay for a longer amount of time if you chose the more expensive degree or institution.
Loans for part-time students
Part-time students from the UK can apply for a tuition fee grant or course grant as well. For both full-time and part-time students applications can be made online.
Repaying your UK student loans
Repayments will by default begin after you have completed your studies on the 6th April the following year and once your annual income exceeds a set threshold. Once you start earning an income above 85% of the average annual income of UK workers (£26,727) which is roughly over £21,000, you’ll be required to repay your student loans.
If you make less than this average you may apply to have the payments deferred. The SLC will contact your employer once your salary reaches this figure and your employer will deduct the amount from your salary every month to pay the student loan on your behalf.
You could also opt to pay your student loan off early but this isn’t going to improve your finances in any way because the interest on a SLC student loan is so low that a regular savings account will provide you with a higher return than you’ll lose from a student loan.
On average it will take you about 30 years to fully pay off a student loan-provided that you earn above the set threshold we’ve discussed.
Common student loan repayment misconceptions
There are a lot of misunderstandings when it comes to student loans issued by the SLC. What you need to know is that how much you actually repay will depend on how much you earn.
If you never earn more than £21,000 you will never have to repay you’re student loans and if you do you will only have to pay 9% of the amount over the £21,000 threshold.
So this means that if you earn £25,000 annually you will have to repay 9% of £4,000 which is £360. If the student loan has not been repaid within 30 years, let’s say because the threshold salary was never reached, all the debt will be cleared and you would not have paid anything.
How do student loans affect your credit score?
Many people worry that their student loan will have a negative impact on their credit report but, a student loan will not be listed on your credit report-whether you pay it or not.
Unlike other forms of loans you will probably encounter later on in life, with a student loan no one will harass you for failing to make repayments. Many creditors will not even be aware that you have an outstanding student loan simply because they will not even request this information.
If you are repaying a student loan this may show up when you debt to income ratio is calculated when you're applying for a mortgage or vehicle financing.
Making over-payments on student loans
It’s not worth it to make overpayments towards a student loan simply because what you pay does not depend on how much you borrowed but on how much you are earning.
What happens once you have paid off the entire student loan?
The answer is pretty clear cut – the HMRC will inform your employer and who will cease making payments and your salary will then increase accordingly.
Once you’ve been granted a student loan it’s a good idea to begin planning how you'll manage your money by creating a budget. If you begin a habit of creating and sticking to a budget from early on you'll certainly develop the ability to effectively manage your finances in future.
You need to add up all of your monthly income including any money coming from a maintenance loan or grant, from your parents and from any part-time job you may have and work out how much you need to allocate to each expense starting from the most essential.
Your tuition fees, rent, utility bills, food and transport costs are all considered essential and any money left over can be allocated to other expenses as well as non-essential items such as entertainment and luxuries.
Student budgeting tools & resources
There are a range of simple and effective student budget tools available online that can help you create an effective budget. Students are also entitled to many specials, discounts and free deals for anything from cell phone deals to fast food vouchers and more so shop around for the best deals and make the most of the benefits you get from being a student.
Open a student bank account
A good choice for students is usually an account that has the largest 0% interest overdraft available. This will allow you to borrow without incurring any interest fees at all-you simply need to repay the amount you’ve borrowed.
Interest free overdraft accounts are available only to students so do take the opportunity. You can also allocate the money you borrow from the student overdraft to a savings account-it won’t make you rich but any extra income and savings will go a long way.
If you do go for a student overdraft account make sure you don't exceed the overdraft limit and that you clear the balance before the 0% interest period is up.
To open a 0% overdraft account or any other type of account you may choose you need to bring an Identity Document, proof of address and a document that proves you're a student.
Building good credit as a student
While your studying you can certainly takes steps to improve your credit report and make it easier for you to get important personal loans to finance a car or home in the future.
As mentioned previously, your student loans are not included in your credit report and neither are fines, gambling activities or criminal records. What will certainly be in your credit report are your loan history and any banking activities such as those done on your credit card.
To ensure that you build a good credit history, you may want to apply for a credit builder credit card or any credit card to simply demonstrate that you have financial restraint and would pose little risk to borrow to.
If you're likely to use the credit card irresponsibly rather don't apply for one at all because damaging your credit report is never worth a bit of extra cash.
You should also sign up on your local electoral roll. This is simply a way that creditors verify your identity and address and it will be worth your time to get it done.
Get a copy of your credit report; it's free
In addition it’s an excellent idea to obtain a copy of your credit report so that you can become accustomed to what the lenders are looking at as well as verify that all the information is correct and up to date.
Increasing your knowledge about all factors relating to money and finance will help you navigate your finances in the future.
If you can keep up with all the payments you're responsible for and make smart choices when choosing creditor, products and deals you'll certainly be able to leave university with a good credit score that will help you get finances for larger purchases like a car and a home.