Student loans can be stressful, confusing, and expensive. But because they are a reality of life for so many of us, it is important to understand them, and to stay informed about the various interest rates, repayment schedules, and income contingencies that they entail.
The first thing to be aware of is that the repayment plan does not go into effect until the April after you finish or terminate your studies and are earning depending on when the loan was given, a minimum yearly salary of either £15,795 or £21,000. This, of course, applies whether you successfully earn a degree or not. The term ‘income contingency’ refers to the notion that you will not start paying back your loan until you reach the minimum salary threshold at which point 9% of income is automatically deducted from your paycheck along with taxes and also to the fact that the interest rates on the loan fluctuate depending on your salary. Up to a certain point (£41,000 annual income) the more you make, the higher your interest rates will be.
Also, keep in mind that if at any time your annual income should fall back down below the minimum threshold, your loan payments will stop, and only resume again when you are once more earning a sufficient amount.
Another important aspect of student loans in the UK to understand is that, because repayments are generally collected as part of the tax collection system, repayments usually do not require much direct action on the part of the loan recipient. The one major exception, however, is for those who go abroad after finishing their studies, thereby rendering themselves exempt from traditional taxation. Obviously, even if you leave the country, you are still responsible for repaying your loan. You will need to make special arrangements for payback and will be subject to a different set of income regulations. So be sure to carefully review the requirements on the government website if you have plans to expatriate.
Finally, you are probably wondering how long will it take to pay back a student loan. Unfortunately, there is no cut and dried answer to this question. It will vary with everyone. However, that being said, you can find a repayment calculator here, where you can get a rough estimate of your expected loan schedule. But because of uncertain inflation rates, future income levels, and interest rates, the best any calculator can give will be no more than a vague approximation. The short answer, anyway, is that most loans typically take between 20 and 30 years to pay back.
Also, it is worth noting that this guide is only intended to be a helpful reference, and that for more detailed information and more precise figures, you should visit the government site at www.direct.gov.uk
About the Author:
This article was written by Jonny D from Ladbrokes