Student Loans: A crash course in what you need to know
As student debt grows, can you afford not to check out our financial advice and understand the key things to know before going to university?
What is a ‘graduate salary’?
Commonly a graduate salary is considered to be at the level at which your student loan repayments are triggered, meaning you start to pay back your associated debt. This kicks in at £21,000.
At Your Horizon, we classify a graduate salary as £22,000 – £30,000, with the average Times Top 100 employer paying £24,000 per year.
Student loan: Your Horizons crash course in what to know
1. As of September 2017, interest rate rose on student loan meaning they increased from 4.6% to 6.1%, 24 times higher than the bank of England base rate.
To contextualise this, you can get a personal loan for 2.8% and a mortgage for under 2%. Only the highest earners will pay the top interest rate.
2. Over 70% of students under the new student loan system are forecast to never pay off their student loan debt in full. This is perpetuated by the wider variety of degrees on offer and the lack of career direction associated with some courses.
3. You are not liable for paying back your student loan until the April after you graduate.
4. You don’t start having deductions taken until you start working and earning over £21,000.
5. Anything earned over £21,000 results in a 9% deduction, which becomes a student loan repayment.
Note: If you are in Scotland, Northern Ireland, or you started University before September 2012 the rules are slightly different.
If your earnings are at the lower end, don’t be surprised to see all your deductions offset by the interest rate increases against your loan
Note: The deduction isn’t made against your student loan until the end of the financial year meaning you lose out on the 9% deduction’s associated interest while also being hit by the interest rate on your total loan amount. If your earnings are at the lower end, don’t be surprised to see all your deductions offset by the interest rate increases against your loan, in your end of year statement.
6. Student loan interest rates will change based on the current rate of inflation with RPI as the key measure (RPI + up to 3%).
7. The more you earn the higher your interest rate, i.e. the more you earn the more you pay back per month and the more interest you therefore accrue.
8. High earners can consider making early repayments to avoid the higher interest rates on their student loan.
9. Your student loan will not affect your credit rating, as it is a government loan, therefore a £30,000 student loan debt will not appear on your credit rating.
However, it will impact your financial capacity to pay back other debts such as a mortgage, as your net income will drop as a result of your loan repayments. Consequently, it will impact how much you can borrow based on your outgoings.
10. Student loans are removed from your record after 30 years (typically at aged 50), therefore your debt becomes zero.
Got a question you want to ask about student careers advice? Ask a Your Horizons expert.