Understanding student loans

Understanding Student Loans

If you or one of your family members is heading off to university in the near future, you may want to get clued up on who it is that will be paying for it and how it will be paid for. For most, a student loan will be the first loan they ever take out and owning back such a large sum of money can be daunting. Therefore, it is of great importance to understand how loans and repayments in general work, so that you do not have to spend your time worrying about it.

How is the loan repaid?

Luckily a student loan is rather care free in nature on your behalf. When you come to applying for a tuition fee loan through Student Finance, the amount of money which has been granted for the actual fee amount will be directly transferred to the University you will be attending on your behalf. So, you never actually see this money or have to deal with it in any way.
understanding-student-loans

Tuition fees are paid directly to the university.

Tuition fee loans and maintenance loans are different to each other. A maintenance loan is what you are granted by Student Finance to live on, separate to the £9,000 university fees. This loan will be paid into your personal account in three different instalments per academic year.  

How much interest is charged on a student loan?

Interest will start being charged on the student loan from the date it is paid out until the day that is paid off. The interest on student finance loans is calculated at 3% above the Retail Price Index or against the rate of inflation which is happening whilst you are studying full time. When it comes to your graduating if you earn less than £25,000 as of April 2018, you will only be charged interest at the RPI. Once you start earning over £25,000 (previously £21,000) the interest above the RPI increases as you earn more and more money, up to 3% when you are earning £41,000 and above.  

How do you repay a student loan?

You can only begin to repay a student loan from the April after you graduate if you are earning over the threshold which is now £25,000 per annum.  If you are not, then you do not have to start repaying your student loan until you are. The amount you are expected to pay is calculated at 9% of the money which you earn above the £25,000 (previously £21,000) threshold. So, let’s say you earn £30,000 – you will be paying back a total of £810 per year, which is 9% of £9,000. If you then divide this figure by 12 you have the amount you will be paying back each month rather than annually. Monthly repayments for your loan will simply be taken directly from your salary before it is given to you so that you never see the money anyway and therefore will not be able to spend it.  

Daniel is a loans expert based in London and has been working in the payday loans industry since 2010.