Everything You Need To Know About Student Finance - Part 2
Welcome back!
Continuing this series, this second part will be talking about budgeting and repaying your student loan. There are many myths surrounding the repayment of your student loan which leads many people to opt to pay for university out of their own pockets for completely the wrong reasons.
When do I have to repay my student loan?
For full time courses, you will start the year after you graduate from your course, but you will only pay if you earn above the threshold (we will discuss this later). Therefore, if you are unemployed, you will not have to begin repairing your student loan. For part-time courses, you will have to begin paying four years after you start your course, or one year after you graduate, whichever comes first, but again only if you are earning over the threshold.
If you start a job, your employer will automatically deduct the money from your pay check. If you are self-employed, you will have to manually ensure that it gets paid every month. However, most people don’t ever get around to repaying the entirety of their loan because of how small the amongst are taken from your salary, and the fact that the government cancels your loan after 30 years, regardless of how much you have repaid.
How much do I repay each month?
The repayment rate is 9% of whatever income is over the threshold. For the Uk, the current threshold is £26,575 a year, £2,214 a month or £511 a week. However, if you earn for example £521 a week, you will only repay 90p a week, as the amount of money above the threshold is £10, and 9% of £10 is 90p. If you drop out of your course early, you will still have to repay your loan, but the repayment schedule will be different.
What is Interest and how does it affect my loan?
Interest is a small additional charge that adds small amounts to the total amount you need to repay to keep up with inflation. The interest rate for student loans is based on the RPI, which measures the changing cost of living in the UK - it is usually the RPI plus 3%. However, one large myth that needs to be debunked is that the interest rate does not affect how much you repay each month - this is a fixed rate and is solely based on your income. The interest adds to the total amount of money you need to repay, but in the majority of cases, this also does not have a huge difference as the government may cancel your debt before you even have a chance to repay it - the government estimates 2 out of 3 loans will be written off.
Now that we’ve discussed repaying loans, let's briefly look at some effective ways to budget your money in university. This will likely be your first time having to worry about expenses like utilities, groceries, rent, bills and having not a very large income, if at all. University cities are also known to be a lot more expensive than others, simply because of the large population and business potential for restaurants and shops. This makes it incredibly important to budget well, and this is a skill that you will need for the rest of your life. Here are some greatest tips for budgeting:
Start with the most important categories first - begin with things that need to be paid like rent and bills, and work your way down. This will ensure that you know exactly how much money is available to you for going out with friends without meaning that you cannot pay important bills.
Create a buffer in your budget - make sure you are not allocating every single pound. Emergencies and bad days happen, and you will need emergency funds at one time in your life, whether this is in a savings account or a separate ‘rainy day’ part of your budget. It is better to be safe than sorry, and this will also help you save money, as if you don’t use this rainy day money, it can go into your long term savings. Save as much as possible - this money could help you for the rest of your life!
Use budgeting tools - Budgeting is difficult, especially for first timers who know next to nothing about money. There are apps and websites that can help you, as well as people. Even a conversation with someone who is a lot more experienced can help give you some real-life advice from someone who has gone through everything you have.
Money is a difficult issue; it is important to be fiscally responsible and this is a skill you will use for the rest of your life. Being a student and going off to uni is a massive change and will undoubtedly be difficult, so don’t be afraid to ask for help. Everyone around you is either in the same boat or has been at one point in their life. Remember, keep some perspective - things will get easier to manage the more experience you get. Good luck everyone!
