How To Repay Your Student Loan
Having always been something of a contentious and controversial subject, the issue of student loans stormed to the forefront of news bulletins and public consciousness earlier this year following the coalition government's announcement that fees could rise to as much as £9,000 for each year of study.
Thousands lined the streets in furious protest as people calculated exactly how long after the completion of their degrees they would remain in debt. Loans are enough of a minefield as it is, with student debts the most potently explosive. There are, however, ways of minimising the inevitable pain of repaying your student loan.
Ultimately, there is a temptation to begin repayments as soon as possible, particularly if you have some extra cash. Whether or not you actually should depends mainly on the presence of any other debts in your life and, particularly, when you studied as this dictates whether your interest for the academic year 2011/12 stands at 1.5 per cent or 5.3 per cent.
The first step is to simply establish exactly which type of student loan you have. Those who were granted a loan post 1998 currently have an interest rate of 1.5 per cent and a new style 'income contingent' type of loan. This means that those who have moved into work will repay nine per cent of everything they earn over £15,000 each year. So, the repayment rate for someone who earns £16,000 per annum is £90 per year, while for someone who is on £30,000 the instalments are £1,350; this money is automatically deducted from your payroll.
The interest rates for those who start in 2012 have not yet been set, however the minimum threshold for repayments has been raised from £15,000 to £21,000.
It is also important to remember that the debt only needs to be repaid once you are earning enough, so don't panic about saving up, mounting bills or call from creditors. Furthermore, the debt is written off after approximately 25 years, or 30 if your studies begin in 2012.
As the loan is automatically repaid, quite simply, your student loan will be taken care of with minimal effort on your part so focus instead on clearing debts with high interest levels or severe penalties for repayment failure.
As mentioned, there is no need to rush repayments and former students, particularly those with a post 1998 loan, shouldn't be in any hurry to overpay for two main reasons. Firstly, any spare cash can generate you more by being saved then the loan costs. The interest earned in a top savings account can far outweigh the cost of a student loan, particularly for basic rate tax payers.
Secondly, the money is simply better off being saved for debts and loans that demand more immediate repayment. Even if you don't have any now, who's to say they could not crop up in the future? Commercial interest rates dwarf those on a student loan and repaying now leaves you vulnerable to far more expensive borrowing at a later date.
Much of the panic surrounding student loans is over inflated by many people with a penchant for exaggeration. Your student days should be some of the best of your life and are not meant for stressing about the future. Repaying sensibly will minimise the impact your debt has on your post university life.
