9 common myths about your student loan
Student loans are complicated beasts - but they're not to be feared
Owen Burek is founder of the student money website www.savethestudent.org and more recently the graduate advice site www.savethegraduate.org. As well as publishing 'The Essential Student Guide to Finance', Owen is a frequent writer and commentator for various publications, and has made live appearances on BBC News.
Monday 02 September 2013
The recent trebling of tuition fees to as much as £9,000-a-year resulted in mass student demonstrations and an immediate loathing for one man in particular, Nick Clegg.
Needless to say, with all the media hype surrounding the topic over the past few years, a number of myths and rumours have evolved to the point where students with their sights set on university are being put off for all the wrong reasons.
Although the increase in tuition fees is unwelcome, it's still important that students go to university and fulfil their ambitions. It's more important than ever for young people to know the facts before possibly turning down a life changing experience.
And with that, let's get on with undoing some of the most common myths.
Myth 1: "Poor students can no longer afford to go to university"
One of the most common arguments against the new fees system is that it would act as a barrier to students from lower-income backgrounds.
The reality is that it shouldn't matter how much money you have when applying to university as you don't pay for anything upfront.
What's more, the institutions that choose to charge the maximum of £9,000 a year can only do so providing that they offer increased financial support to students who need it.
As it stands, those who come from a household with a combined income of less than £42,611 a year can apply for extra funding in the form of a maintenance grant. Students who apply with a household income of less than £25,000 a year can also apply for the National Scholarship programme for additional support, though it's set to be scrapped for 2015-16 starters.
Myth 2: "You will be in debt for the rest of your life"
As we hear all the time, having any debt hanging over your head is a bad thing, and the thought of a debt that could stay with you for the rest of your life is knee quivering.
However when it comes to repaying your student loan, there is a cut off point of 30 years from the day you graduate. What this means is that no matter how much of your loan you have repaid (whether it be £10 or £30,000) the remaining balance will be wiped once the 30 years is up.
Although this is five years more than the pre-2012 student finance terms it still means that your student debt won't last a lifetime.
Myth 3: "The loan repayments are now bigger than under the old system"
The results from this year's National Student Money Survey showed that a whopping 55 per cent of students don't fully understand the loan repayment conditions, with a high number noting concerns about being able to afford paying their student loan back.
The truth is that you don't have to pay back a penny until you are earning over £21,000 (once graduated). Even then you are only required to pay back nine per cent of anything above that amount no matter how much you owe.
Under the old pre-2012 system graduates are required to pay back nine per cent of anything that they earn over £15,000 which actually means that students that graduate under the new finance system will pay back £417 a year less than them (but over a longer period).
Myth 4: "The student loan will affect your credit score"
Taking out a student loan does not affect your credit rating and won't show up on any report.
When you apply for a mortgage, loan or credit card in the future the only way that these companies can know if you have a student loan is if they ask you on your application.
If they do take your student loan repayments into consideration it will likely be used to better calculate your net earnings. In fact, because you pay back less per year under the new system you could turn out better off.
Myth 5: "Interest is charged at the rate of inflation only"
One of the most alarming conditions introduced under the new student loan system was the addition of a per cent interest rate above that of inflation as it was previously.
While you are studying your loan will increase at an interest rate of three per cent plus inflation. Upon graduating you will be charged an interest rate of zero to three per cent plus inflation, depending on your salary.
While that's bad for students, it's still worth keeping in mind that you wouldn't be able to borrow money at this relatively low rate from any bank.
Myth 6: "You have to pay your tuition fees to your university yourself"
Your student loan is split up into two different sections: the tuition fee loan covers your university fees and your maintenance loan helps to cover your day to day living costs.
Fortunately, you don't need to worry about receiving the tuition fee loan into your bank account and then paying the university yourself as it gets paid direct.
The money that you will personally receive at the start of each term is your maintenance loan, which is usually a time for mass celebration.
Myth 7: "Moving abroad will mean that I don't have to pay back my loan"
This is one of those rumours that seems to spread amongst freshers like wildfire. Whether it's the thought of beating the system or just a good excuse to leave the country after graduating it, unfortunately, isn't true.
If you do plan on jetting off for warmer climes after graduating then you will need to inform the Student Loans Company and fill out an Overseas Income Assessment form.
You can try to run away but to play on a certain quote from a popular film: they will look for you, they will find you and they will make you pay.
Myth 8: "The repayment terms will never change"
You have signed a contract so none of the terms can possibly change, right? Wrong!
Although unlikely, it's worth remembering that the government can change the repayment conditions of your loan repayments at any point.
This could come in the form of increasing the cut off point of 30 years or restructuring the interest rates.
However, the backlash that would occur from a whole generation of graduates would most likely not be something that any future government would want.
Myth 9: "The maintenance loan will cover all of your living costs"
Many students assume that the maintenance loan alone is enough to cover living costs, spanning your rent, bills, food, socialising and academic materials. Unfortunately however, this is anything but the case for the majority.
Students are expected to supplement their maintenance loan through a number of sources including, but not exclusive to grants and bursaries, parental support, part-time jobs and other forms of credit such as a student bank account overdraft.
Owen Burek is the editor of savethestudent.org
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