You’ve heard those myths about student finance, haven’t you? Such as: the more money you borrow from the government, the more you’ll repay per month; that you’ll be paying off your student loan for the rest of your life; or that if you don’t repay it all in your lifetime, it will be passed down to your nearest and dearest!
Rest assured that none of the above is true, but student finance often gets a bad rep because it’s so misunderstood (poor student finance). Let’s debunk some myths and give it a break from all the judgement.
1. More debt = higher monthly repayments
This is perhaps the biggest myth about student finance! An easy way to understand the repayment system is to view it as a student tax. It’s your annual salary that dictates how much is taken from your monthly earnings; the amount you have borrowed for uni has no bearing on the size of your repayments.
And in order for repayments to start, you must earn a certain amount per year – £27,295 to be precise. Anything you earn over that threshold will be ‘taxed’ at 9% and taken from your monthly salary at the same time as your tax and national insurance payments. On top of that, you’ll only start to repay your loan the April after you’ve graduated. Yay for post-uni, payment-free life!
Example, please?
If your income is £30,000 a year (£2,705 above the threshold), you’ll repay £243 per year (9% of £2,705), which is only £20 a month. Not too bad!
2. You’ll be repaying your student loan for the rest of your life
Nope! If your loans are from the UK Government, the balance will be wiped after 30 years even if there’s unpaid debt. So if you graduate from university at 21, your repayments will stop when you are 52.
30 years might still seem like a long time, but we don’t advise that you make an early repayment if you have the means to. Yes, it would reduce the amount of interest you’ll pay overall but, in most cases, it’s unlikely you’ll repay the accumulated interest on your loan before it’s all cleared in 30 years anyway. Ultimately, you’d be giving back more than you would’ve done otherwise!
3. Your student debt will affect your credit score
Incorrect. Student loans won’t appear on your credit report or affect your score. If you want credit (e.g for a car loan, phone contract or credit card), some lenders might ask if you have a student loan and how much you repay per month. They’ll look at your loan in a similar way to a gym membership or Netflix subscription, it’s a financial commitment and outgoing from your monthly payslip after all. Their only concern is whether you can comfortably afford repayments on top of all your other expenses. Remember – scholarships and bursaries are a good way to bump up your money. Check out what you might be eligible for at kent.ac.uk/scholarships/undergraduate.