The second in our 'ask the expert' series, which sees Kevin Boon of the Consumer Credit Counselling Service (CCCS) address the issue of student loan repayments.
Q. I left uni in 2007 with a student loan debt of around £15,000 and an overdraft limit of £1,850. I immediately went to work full time, earning £24,000 after tax, but have been unable to even pay off my overdraft, let alone throw a lump sum at my student debt. My worry is that a recent statement from the Student Loan Company said I now owe them £18,000 – £3,000 more than I initially borrowed, meaning an increase of £1,000-a-year (or £80-a-month). As they are already deducting £1,000-a-year from my wages, the true rate of interest must be more like £2,000-a-year. If I'm correct, I'm estimating it would take me about seven and a half years of £200-a-month payments to clear my student debt. To do so would mean a change of career - something I'm very reluctant to do. Do you think it’s advisable to move jobs now to start paying off the debt or should I continue with manageable but effectively debt-increasing payments of £80-a-month in the hope of earning more money in the future? Finally, if I do change careers, my girlfriend is keen for me to move abroad with her. Am I right in thinking that after a certain amount of time abroad, my student loan debt becomes void anyway? - Jamie, London.
A. From 1 September 2009 – 31 August 2010, The Student Loans Company decided they will apply 0% interest rate across student loans taken out after 2008. If the Student Loan Company have been taking £1,000 a year from your wages this in theory should mean your loan will come down by the same amount. The interest rate after August 2010 year has yet to be announced but history shows that it tends to much lower than the rate of interest you would be paying on credit debts such as credit cards, personal loans and overdrafts.
* from 1 September to 4 December 2008, the interest rate was 3.8 per cent
* from 5 December 2008 to 8 January 2009, the interest rate was 3 per cent
* from 9 January to 5 February 2009, the interest rate was 2.5 per cent
* from 6 February to 5 March 2009, the interest rate was 2 per cent
* for 6 March to 31 August 2009, the interest rate was 1.5 per cent
Looking at the interest rate historically it's difficult to understand why the balance of your loan has increased so much since 2007. It would certainly be worth speaking to SLC to ask them for a breakdown of charges and payments since you had the loan as.
Unfortunately the idea of student loans becoming wiped off after 3 years is a myth. If you were to move outside the UK you would be asked to complete an overseas assessment form to see whether you will still be required to make payment towards your loan. There is more detailed information regarding this here.
Considering the interest rate on your loan is now 0% it would be more beneficial to look at clearing the overdraft you have first, if you are paying interest upon it. It might be of benefit to draw up a budget based on your current income and expenditure to give you a true reflection of how much you have left each month to service the overdraft. Once this is cleared you could look at using the money to pay extra off your Student Loan if you are keen to make more impact on the balance. If you need help drawing up a budget, you could consider using our online tool CCCS Money Matters . You'll get a free advice booklet tailored to your own circumstances, outlining steps you can take to manage your financial position as well as a detailed budget.
Having problems with debt?
Every Friday, Kevin Boon of the Consumer Credit Counselling Service will answer your questions and provide expert advice on the best way to deal with debt. Send your questions to email@example.com with 'Money Matters' in the email subject line.
CCCS is a national charity giving independent advice to anyone worried about debt, delivered free of charge by expert counsellors. Based in Leeds, CCCS is able to help people with debt problems wherever they live in the UK, through its free national telephone service (0800 138 1111), ten regional centres and online debt remedy service ( cccs.co.uk/debtremedy).