Tuesday, September 25, 2012

Student loans are NOT DEBTS!

A little late given the start of the university year in September, but the worry of the large loans having to be taken out to attend university is still cropping up in some circles. None of this is helped by the constant refrain that this is a loan and therefore a debt you will be burdened with.

This is not true.

The best way to think about this is as a "Best Friend's loan" or a "Family loan" the money is not expected back, but if you suddenly find yourself plush it would be nice to repay it. That's how the student loans work. If you don't earn more than £21,000/year - you'll won't be paying anything back. If you do it will automatically be deducted from your wages. No affect on credit rating, no nasty calls demanding money.

Ah but how much do they start to take out once you do start earning money? Take your annual wage subtract £21,000 from it and take 9% of that. Earn £25k a year and that's a repayment of £360 a year. That only changes if your salary changes

Should you pay it back early - no. Remember although the loan increases with an interest variable to your earnings the amount you pay back per month is fixed at that 9% so even if you find yourself earning a lot and eager to pay it all off; firstly don't assume your financial situation will remain as is; secondly the 'debt' is wiped after 25 years anyway.

[Okay - perhaps not so out of date as this morning (26/9) BBC Breakfast were discussing Student Loans and if such students starting university were ready to deal with their own finances]