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Wednesday, 28 August 2013

Student loans: What you need to know

The new academic year is due to start in just a few weeks. From primary school to postgraduate studies, preparations for the first lecture, class, workshop and seminar are beginning. Now that thousands upon thousands of students know which university they are going to, the time to start getting ready for higher education for them is now.

A big part of being prepared for a three or four-year undergraduate course is sorting out personal finances. Living away from home in private accommodation or the halls of residence will cost money, so it’s important to make sure that the funds are there to pay for everything from tuition fees to the accommodation.

Student Loans are a necessity for any student who needs to cover the cost and saving in every area of life including studies is averagely impossible, but how do they work, are they as helpful as they seem and what happens when they need to be paid back? Here, we go through the ins and outs in an easy-to-understand way.


What are they?

Student Loans come in two parts: Tuition Loans and Maintenance Loans. The first one covers tuition fees in their entirety, while the second meets the cost of accommodation, food and other essentials. The amount loaned each year is equivalent to the tuition fees paid for Tuition Loans, while the most loaned for maintenance is £5,500 (£7,675 in London).

The application process

Nowadays, you have to apply for a loan online via the Direct.gov website. You need your home address, your passport details and proof of your parents’ income in order to get the amount of money you’re entitled to.

Before the start of every academic year, you need to ensure that if your circumstances change, you visit this site to make any necessary amendments to your application. You also need to be wary of making the following common mistakes:

  • Using your Maintenance Loan to pay for your tuition fees
  • Thinking your loan will affect your credit score – it doesn’t!
  • Over/underestimate the amount needed for either loan


Keeping finances under control

On top of the money received in the form of loans, you might have to get an overdraft facility from your bank. Managing your overdraft can be hard, but as Dan Bowen said in the Guardian:

“It is really important to check your account provides an interest-free overdraft, rather than just assuming it will do so. Also, make sure you know the limit, as charges for exceeding your overdraft are high.”

Caution is advisable when using an overdraft. It should only be used in emergency situations.


Credit Rating and eligibility

Your credit score is determined by numerous factors. Many believe that a credit score can affect you from getting a student loan but this is far from true. Past debts play a big role in a credit score result. “As long as you don’t owe the Student Loan Company anything already, you should be fine. Having a bad credit rating has no impact whatsoever on your eligibility for a loan, which will come as a relief to many people who have a history of bad financial management. You can make any cuts to increase you’re saving, then set up a budget for essentials and stick to it,” says a spokesperson from Yorkshire Building Society. Repayments are only taken from future earnings, which will come as a relief to those of you with concerns about your credit rating.

Student Loan repayment

This isn’t something that should really be contemplated until your course has been completed, but the good thing about student loans is that repayments are manageable. The amount you repay back every month depends entirely on how much you earn. Here is how repayments work:

  • You have to pay something back if earning at least £21,000 a year
  • Anyone earning between £21,000-£25,000 will have to pay around £30 a month back
  • Anyone earning up to £30,000 will have to pay £67.50 a month
  • Anyone over £40,000 per annum has to pay back £142.50 a month, equating to £1,710 a year


The loan repayments equate to 9% of the amount which someone is over the threshold, which is then divided into 12 monthly payments. If you get in touch with the Student Loans Company, which provides all student loans sanctioned by the government, you can pay back more than usual if you feel the need to.

Student debts are typically around the £25,000 mark after a three-year-course reaches its conclusion. This may sound like a lot, but they are manageable, making them a ‘good debt’. This means that you have little to worry about as repayments aren’t urgent.

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