TYPES OF DEBT

Student Loan Debt Help & Advice

Types of Debt

Student Loan Debt Help & Advice

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In Scotland, students don’t pay fees for going to college or university but for many getting a student loan is the difference between being able to financially make it through a degree course or not.

In this guide, we’ll explore student loans, including what they are, when you start your student loan repayments, and where you can find debt help if you’re struggling to keep to your repayment plan.

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What is student debt?

It’s extremely common for students who attend college or university to take on debt in the form of student loans. These loans were designed by the UK Government to help students with costs associated with their studies.

Student loans are sent by the Government directly to undergraduate and post-graduate students via their bank account. They help pay for expenses like tuition fees, equipment needed for the course, and transport costs to campus (buses, trains, fuel for a car.)

Worries about student loan debt often gets pushed to the back of the mind during studies and you only have to start repaying it when you have graduated and your income is high enough. Because it’s Government-backed, it’s a relatively risk-free form of debt with a much lower interest rate than other types of loan like a credit card or mortgage.

Once you are over that income threshold, however, continually failing to meet your student loan repayments can have some significant consequences and cause you major financial stress.

 

When do you start to repay your student loan?

You won’t begin repaying your student loan as soon as you graduate. The Government takes into account the fact that many young undergraduate students don’t finish their course and go straight into the world of work, so repaying your loan is based on your income.

Student loan repayment thresholds

The student loan repayment threshold you have to be earning a salary of a certain level before you start repaying with interest. The repayment threshold is different depending on what kind of plan you took out with the Student Loans Company.

Plan 1

If you have a Plan 1 loan, you’ll start paying towards your student loan balance as soon as you begin earning more than £19,390 in a year.

Plan 2

If you have a Plan 2 loan, repayments towards your student loan will start as soon as your income reaches £26,575 a year or more.

It’s important to remember that, if you’re a student in Scotland, you shouldn’t have to make repayments towards a tuition fee loan – tuition fees are free in Scotland, so this type of debt mainly concerns people in England, Wales, and Northern Ireland.

How do I make student loan repayments?

Repayments are normally taken directly from your wages if you’re employed or through your self-assessment tax return if you’re self-employed. The payments are typically nine per cent of the income you earn above the threshold – which does not change if your income increases.

If your annual income is below this, repayments will generally not be taken from you. However, if you earn over the threshold within a given week/month, for example if you have been working overtime to earn extra income, you may notice an unexpected payment being taken from your wages.

Can the student loans company chase me for payments?

It’s important to note, that although for it’s a normal part of life for many of those studying, when you take out a student loan, you have made a legal agreement with the Student Loans Company (SLC) to repay this depending on your circumstances.

The SLC has the right to ‘accelerate’ your debt in the event that you continually fail to repay your student loan, or your situation changes and you find yourself unable to meet the cost. When this happens, the SLC will act in a similar to debt collectors.

By ‘accelerating’ your debt, the SLC will apply for a court order that forces you to repay your full loan amount in one go. Unless you can give good reason for your failure to repay what you owe, the SLC won’t be content until you have repaid your debt in full.

Do student loans affect your credit score?

Unlike other loans and forms of credit, a student loan won’t show up on your credit file so long as you continue to pay it on time and in full.

If you default on a student loan repayment, however, it could cause you a problem. Any time you default on a credit agreement (like your student loan) that default will show up on your credit history, which is an exhaustive list of all of your financial transactions.

Carrying black marks on your credit history will lower your credit score, which will make it more difficult to do things like open a new bank account, or access credit when you decide you need a car loan or a mortgage.

How can I avoid student loan debt?

Student loans are unavoidable for some people. The loan can be used to fund their accommodation, school supplies and general living costs, however, there are ways to avoid falling into a deep hole with your student loans.

Boost your student finance with part-time work

Getting a part time job whilst you are higher education can help with this as student loans are means-tested. Having additional cash you’re able to set aside from your wages as you go through your degree may mean that you won’t even need to apply for the loan further down the line.

It can also prevent you from turning to other types of credit to cover the cost of day-to-day living such as credit cards of payday loans.

Check what student grants you qualify for

If you are in the fortunate position that you’re able to avoid taking out a student loan, it’s important not to forget the importance of keeping a close eye on your finances. Just because you aren’t struggling now it doesn’t mean that it won’t be a possibility in the future.

With that in mind, it’s always worth checking if you qualify for any grants or bursaries before going to university or college as these do not have to be paid back. Examples of funds available include childcare funds, discretionary funds and the disabled students’ allowance. Speak to your student union to find out more about support you could access during your course.(maintenance grants)

Keep track of your student loan repayments

Once the excitement of graduation is over and you settle into your first real job it can be all too easy to lose track of student loan payments every month. It might just be something that happens each month but when it comes to paying the loan back it is important to continue to keep an eye on your payslip to ensure the payments are being deducted.

If you notice that a deduction hasn’t been made, contact your payroll immediately to rectify this.

Check how much money you should be paying the student loans company

If you’re self-employed, it is your responsibility to check the box on your self-assessment that you have student loans. If you’re unsure about how much you should be repaying, it’s important to do your research to save you defaulting on what you owe.

There are multiple calculators online or accountancy firms that can help you work out how much you should be paying to the loan depending on what you have earned.

Where can I find debt advice and more information on student loan debt?

A lot of people love the idea of going to college or university, but some people simply can’t afford to cover the costs by themselves. For those people student loans are a lifeline, however failure to repay what you owe the student loans company can cause you serious problems later in life.

Carrington Dean can help. Our team of debt specialists have helped guide tens of thousands of people out of debt and towards a brighter financial future.

If your student loan debts are getting on top of you, our team can offer you support, guidance, and debt relief solutions to help you repay what you owe at a rate you can afford. For non-judgmental debt advice, contact us today. The email address is enquiries@carringtondean.com, or our phone number is 0800 043 1320.

 

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