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How Student Loans Work In The  UK
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How Student Loans Work In The UK

Written by Sam | October 6, 2021

If you have recently received a student loan and you are wondering what happens with it, then here I’ll give you a brief overview of how student loans work in the UK!

You will get a student loan from the government if you are a resident of the UK and going to university. I just want to make you aware that as I write this, it is correct, but over time as the blog gets older, it might become outdated. However, I will aim to keep it up to date.

Interest

You may or may not know, but when you take a loan, you start accruing interest from the day you receive it, not when you finish your studies.

It does mean that there is more to pay off at the end because you are accruing interest since day one and it gets bigger and bigger because you get a loan for each term and year you are at university.

The current interest rate for repayment is 4.1%.

Paying it Back

You start paying it back on certain conditions. They are:

  • April after you graduate
  • Earn a certai amount per year

This is good because it gives graduates the chance to become a little bit more established before they start paying anything back. I think the current salary required to start paying it back is around 27k. You currently pay 9% back on anything over the £27k (ish) mark.

If you dip back under, it should stop being paid until you go over that amount again.

This amount is calculated relevant to your earnings and comes out before you even receive your pay. It keeps it easy so that you don’t have to remember paying for it.

It’s Not a Normal Loan

What do I mean by this? Well, if you borrowed this from the bank, you would be expected to meet repayment terms set by the bank or else face some sort of debt recovery if you didn’t. The loan would also be never wiped out if it was with a private bank.

However, a student loan from the government is currently wiped out after 30 years and you aren’t expected to pay anything off.

You don’t have to make minimum requirements or face the bailiffs if you don’t manage to pay anything off.

This is a huge safety blanket for students, the loan still increases in interest which is something not to forget about, however, if you don’t have to meet minimum requirements there is no pressure.

Below are the different amounts to go to university in the UK, these will correspond to your university loan amounts.

Scottish, Welsh and Northern Irish students, including those who decide to study in England, receive their financial support from their “home” devolved administration, so it’s a matter for those governments to decide how they wish to support their students.

  • Scotland:Scottish students studying in Scotland pay no tuition fees. English, Welsh and Northern Irish students studying there will be charged up to £9,250 per year, as will Scottish students studying in England, Wales and Northern Ireland.More info: Student Awards Agency for Scotland.
     
  • Northern Ireland:Northern Irish students studying in Northern Ireland can pay up to £4,395 per year. Those from England, Scotland or Wales will be charged up to £9,250 per year.More info: Student Finance NI.
     
  • Wales:Tuition fees at Welsh universities are £9,000 for those studying in Wales and £9,250 if studying in the rest of the UK.

How Much do You Get?

This is all done on what your parents earn. Your course fees will be paid in full, the variable amount is the loan that looks after housing and all the rest.

This all based on your parent or guardians income. The more they earn, the less you get. The reason for this is because they expect the parents to help their children with any costs.

It is not uncommon for rent to be higher than the amount a student receieves for their loan.

Here’s how it works in practice, for students starting their course in 2021/22:

  • Living at home: The minimum you can get is £3,516 (2021/22) of the maximum £7,987 (2021/22). The difference between what you get and the maximum, in this case £4,471 (2021/22), is the expected parental contribution.
  • Living away from home, outside London: The minimum you can get £4,422 (2021/22) of the maximum £9,488 (2021/22). The remaining £5,199 (2021/22) is the expected parental contribution.
  • Living away from home and studying in London: The minimum you can get is £6,166 (2021/22) of the maximum £12,382 (2021/22). The remaining £6,216 (2021/22) is the expected parental contribution.

Please note this is for England and not Sxotland or Wales,

Don’t focus on the Amount

As a student, once you look at the amount that has been borrowed for teaching and then any maintenance loan and housing cost you can think about the big number and it can be daunting!

Please don’t focus on the big number, make sure you understand that all you need to focus on is how much you are repaying. If after 30 years you have paid £1 or £49,000 off, it still gets written off. This is why, it’s much more important to look at what goes out month to month rather than how much you have left to pay off!

Credit Checks

To get a student loan, you won’t need a sterling credit rating. To get a loan with the bank, you will need a good credit rating.

Banks do this so that they know you have the ability to pay them back, even if it’s the minimum. Howwever, where a student loan is concerned, it’s more around being eligible for the loan, UK resident and making sure eligible for university.

Ability to Get a Mortgage When You Graduate

By having a student loan, it can hinder you, but it’s not by a lot. Your overall price will drop because you are making a monthly repayment but because so many graduates have loans they won’t refuse a mortgage due to you having a student loan.

The only thing to worry about is the rising house prices compared to salaries and building that deposit up!

Summary

  • You need only contribute if you earn enough (£27,295 in a year) once you graduate.
  • Your contributions are taken via the payroll.
  • The more financially successful you are, the more you will contribute in total.
  • If you don’t earn enough, you don’t have to contribute.
  • You only have to contribute for 30 years.
  • You can still get a mortgage after you graduate
  • Focus on the repayments rather than the amount

Discover. Trust. Review.

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