Woman shrugging with pound signs in background

15 Student Finance myths debunked

We hear a lot about Student Loans and rate of interest will increase within the media – however what does it really imply? We debunk a few of the commonest Student Finance myths…

Student Finance is sophisticated sufficient as it’s, so it actually does not assist when misinformation is thrown round. In our Student Money Survey this 12 months, we discovered that two in 5 students do not perceive their Student Loan settlement, and virtually half fear about paying it again.

Arming your self with the info in relation to these items is extraordinarily essential, and for a lot of younger individuals it may even decide whether or not or not they go to college in any respect.

And whereas we actually do not agree with many elements of Student Finance, the scenario is commonly not half as dangerous because it first appears. This information will provide help to separate truth from fiction, and clarify how all this Student Finance stuff really works.

Here are the commonest myths about Student Finance, with key info and information to make clear them:

  • UK student debt is the worst on the earth

    Joey wearing a Union Jack hat in Friends

    Credit: Warner Bros

    This is one thing we see thrown round quite a bit within the media, however please do not let this scare you.

    While tuition charges in England are certainly a few of the highest on the earth, it is essential to do not forget that how we pay for college right here could be very totally different from many different international locations (just like the US), so it is not likely a good comparability.

    Although tuition charges listed here are excessive (too excessive, in our opinion!) you do not have to pay something up entrance and Student Loans are funded by the federal government. As you may see under, the compensation phrases are manageable, will not have an effect on your credit ranking and the probabilities are, you will not find yourself paying all of it off earlier than it is wiped anyway.

    In distinction, personal Student Loan lenders within the US are notoriously unsympathetic of students’ private circumstances. Six months after commencement, they’re already knocking in your door in search of repayments whether or not you may afford them or not.

    While there are personal Student Loan lenders within the UK, we might strongly advise you to contemplate the alternate options as an alternative to scale back your student debt.

    If you pack your luggage and head to a different nation to review, tuition charges could be cheaper – however you will not get the identical stage of monetary assist, which implies paying extra up entrance.

  • You have to be rich to go to college

    Fresh Meat characters in a supermarket

    Credit: Channel 4

    While tuition charges at the moment are over £9,000 a 12 months, and you will have to pay for dwelling prices on prime of that, you need not pay something up entrance. The authorities will cowl your tuition charges along with your Tuition Fee Loan, they usually’ll additionally provide you with a Maintenance Loan to cowl your dwelling prices.

    The decrease your family revenue, the extra money you may obtain as a Maintenance Loan, as Student Finance understands that your dad and mom may not be able to assist you financially when you’re at uni.

    Although which means these from lower-income backgrounds graduate with extra debt than these from wealthier households (and due to this fact will accumulate extra curiosity), present compensation phrases imply it is unlikely you may repay the loan in full earlier than it is cleared in 30 years.

    As nicely as this, there’s a complete load of scholarships, bursaries and grants that will help you in the event you’re actually strapped for money.

    However, many students do report that the Maintenance Loan they obtain is not sufficient to cowl their dwelling prices at uni, and 74% of students have turned to a part-time job at uni to spice up their revenue. There are a great deal of methods to make cash at uni in the event you’re nervous you could be low on funds.

  • More debt means greater month-to-month repayments

    money in a purse

    Credit: Yevgen Kravchenko, kamui29, Bell Photography 423 – Shutterstock

    What many do not know is that, though the rise in tuition charges means you may graduate with extra debt, you may really pay again much less every month than students did beforehand. This is as a result of how a lot you repay every month relies upon on how a lot you earn, not how a lot you owe.

    READ:   6 Ways to Get a Loan for People With Bad Credit

    If you went to uni after 2012, you presently solely repay 9% of something you earn above £27,295. Note that that is NOT 9% of all the pieces you earn, as is typically reported.

    For students who went to uni earlier than 2012, the edge is presently £19,895.

    For instance, in the event you’re incomes £29,295 (so £2,000 above the £27,295 threshold), you may repay 9% of that £2,000 (£180) over the course of the 12 months, which works out at simply £15 a month.

    Obviously, in the event you’re fortunate sufficient to get a high-paid job if you depart uni, you may repay extra. If you are incomes £36,295 yearly, you may pay 9% of £9k (the distinction between your wage and the £27,295 threshold) which is £810 a 12 months, or £67.50 a month.

  • You’ll be paying off student debt your entire life

    Titanic It's been 84 years

    Credit: Paramount Pictures

    No matter how large your student money owed are, in the event that they’re authorities loans (this contains the conventional Tuition Fee Loan, Maintenance Loan – something you get by way of Student Finance principally) and never loans from a personal lender, they will be wiped after 30 years (or 25 years in the event you went to uni earlier than 2012).

    If you go straight into uni from college at 18 and graduate at 21, this might imply your repayments will cease if you’re 52 (repayments begin the April after commencement), even in the event you’ve barely made a dent in repaying them.

    Find out how a lot of your loan you may have paid off earlier than it will get wiped utilizing this Student Loan compensation calculator.

  • You ought to repay your Student Loan as quickly as potential

    wolf of wall street

    Credit: Paramount Pictures

    While the choice of how and if you repay your loans is fully as much as you, we might strongly advise towards attempting to repay your loan early.

    Repaying early would scale back the quantity of curiosity you pay total, however typically, it is extraordinarily unlikely you may even get to the purpose of paying off your collected curiosity in any respect earlier than the 30 years are up and it will get wiped.

    Therefore, in the event you begin attempting to pay your loan off rapidly, you may find yourself paying off cash that you would not have paid again in any other case.

    For those that have severe hopes of changing into a millionaire with a mega wage when you graduate (by which case you may in all probability be on monitor to repay your loan in full earlier than the 30 years are up) – why not look into investing your money as an alternative?

    If the curiosity in your loan is rising at a fee of 5.6% (which is the present fee for top earners), you would possibly really feel pressured into paying the entire thing off if you realize you have bought the spare money. However, a savvy investor may simply get a return of seven%+ on that money which is unquestionably one thing to consider.

    For extra steerage on how rapidly you need to repay your loan, take a look at our information to understanding your Student Loan repayments.

  • All universities are allowed to boost tuition charges

    Cambridge University with money bag emojis

    Back in 2012 when tuition charges had an enormous enhance, we have been all instructed that solely the highest unis can be charging £9k. But as everyone knows, everybody ended up leaping on the bandwagon and charging full whack.

    Lots of people fear {that a} related factor may occur once more, however as issues stand, universities are solely allowed to extend tuition charges in step with inflation. This is why charges elevated from £9,000 a 12 months to £9,250 a 12 months in 2017/18.

    In 2019, the Augar Review advised universities decrease tuition charges from £9,250 to £7,500. But, significantly because the overview was performed whereas Theresa May was Prime Minister, and there is not been an enormous quantity of reference to it from the brand new administration, it is very unclear how a lot affect the overview will even have on tuition charges.

    READ:   Hillary Clinton visits Denver, touts plan to assist entrepreneurs with student loans – The Denver Post
  • Bailiffs will come in the event you do not repay your Student Loan

    Judge Judy

    Credit: CBS

    You’ll by no means be anticipated to maintain up with repayments in the event you’re out of labor or working in a job that pays under the £27,295 threshold.

    Better nonetheless, you will not even be chargeable for checking out the repayments your self, as they will be mechanically deducted out of your wage every month with out you having to do a factor (though regulate your payslips to be sure to’re not being overcharged or paying it again too early).

    This basically means you may solely ever pay again your Student Loan if you’re in a position to, and there is no method the debt collectors will ever come demanding funds.

  • The authorities retains altering your loan’s rate of interest

    House of Parliament

    Understanding the rate of interest in your loan is usually a whole headache, and it is extraordinarily frequent for students to get this bit flawed. A fantastic instance of this was when a graduate’s letter complaining concerning the unfair curiosity on his Student Loan went viral, however as we identified, it was factually incorrect.

    The most curiosity that the federal government can cost on student loans is RPI+3%, however RPI naturally goes up and down over time.

    Therefore, if you examine Student Loan rates of interest going up, that is not as a result of the federal government’s modified them, however as a result of RPI has gone up with inflation.

  • You can keep away from tuition charges by learning exterior of England

    money pot for travel on a map

    This one does have some reality to it, however is usually delusion!

    Firstly, tuition charges are often solely free in Scotland for Scottish residents. So in the event you’re an English student seeking to escape the £9k+ a 12 months charges, Scotland is not your reply.

    You should dwell in Scotland for at the least three years previous to making use of to college to be eligible for the free charges, and even then your software could be denied in the event that they assume you have simply moved there for the only objective of getting uni free of charge.

    You may get tuition charges less expensive by learning abroad as an alternative, however Student Finance will not be accessible to you. You’ll have to make use of your personal financial savings or a part-time job to cowl all of your dwelling prices when you examine.

  • You begin repaying your loan as quickly as you graduate

    Fresh Meat characters at graduation

    Credit: Channel 4

    You will not be anticipated to pay again a penny of your loan till the April following your commencement, on the earliest. Therefore, in the event you graduated in June 2018, your first fee would not have been taken till April 2019 on the earliest.

    This means your first 12 months of post-uni life is payment-free, and even then you definitely’ll solely begin repaying in the event you land your self a pleasant graduate job and are incomes above the £27,295 threshold.

    Even in the event you drop out of college, you do not repay till the next April. There’s extra data on that in our dropout compensation information.

  • Your dad and mom don’t have anything to do along with your funds at uni

    Phil's-osophy book

    Credit: twentieth Century Fox

    OK, so whether or not we agree with that is one other query altogether. But it is value clarifying that the federal government does count on your dad and mom to be concerned in your funds at uni.

    The authorities decides how a lot Maintenance Loan you need to obtain based mostly in your family revenue, as a result of they count on your dad and mom to make up the shortfall.

    In truth, our analysis has discovered that folks contribute a median of £131.31 a month to plug the hole.

    The assumption is that wealthier dad and mom can afford to foot the extra money to place their youngster on an equal enjoying discipline with these from lower-income households who obtain the utmost Maintenance Loan.

    In actuality, some students will get extra monetary assist from their dad and mom than the federal government recommends, and a few will not obtain a penny. The subject right here is that, though the federal government makes use of family revenue to resolve how a lot your loan needs to be, it is solely a suggestion and never an obligation for fogeys to cowl the shortfall.

    READ:   8 million student loan debtors should do that in 2020

    Use our parental contribution calculator to seek out out the extent to which the federal government expects your of us to complement your loan, based mostly in your circumstances.

  • Your student debt will have an effect on your credit rating

    shocked cat

    Credit: dat’ – Flickr

    Your credit rating is essential in figuring out whether or not you are accepted for monetary commitments and might have an effect on all the pieces out of your telephone contract to getting a mortgage in your first home.

    Quite a lot of students fear about how their credit ranking might be affected by having a big chunk of debt, however the excellent news is that your Student Loan debt will not seem in your credit report, so it will not have an effect on your rating in any respect (phew!).

    The solely method they will be capable of discover out when you’ve got a Student Loan in any respect is that if they ask you as a part of the appliance course of, they usually’ll doubtless solely to take action to calculate your internet earnings.

  • Your Student Loan will cease you from getting a mortgage

    Happy woman in new home

    Credit: WAYHOME studio – Shutterstock

    Your Student Loan repayments do have an effect on your mortgage software to a small extent, however it’s unlikely they will ever cease you from getting a mortgage altogether.

    When making use of for a mortgage you may endure one thing known as an ‘affordability examine’. This is the place a mortgage lender checks your month-to-month incomings and outgoings to see how a lot you may realistically be capable of pay up every month (and resolve how a lot money to lend you accordingly).

    As your loan repayments might be popping out of your wage every month, you may technically solely be capable of afford a smaller mortgage compensation every month than in the event you had no Student Loan repayments to make.

    However, the quantity you repay is so little within the bigger scheme of issues (i.e. solely 9% of something you earn over £27,295) that it should not make a lot of a distinction, and definitely should not influence your skill to really get a mortgage.

  • You have to pay for grasp’s levels your self

    woman looking in purse frowning

    Credit: Pormezz – Shutterstock

    Since August 2016, the federal government has been providing Postgraduate Loans of as much as £10,906 for these seeking to do a grasp’s diploma within the UK.

    As grasp’s programs are usually on the dear facet, many students have beforehand opted to go to Europe for postgraduate examine as an alternative – the place it is quite a bit cheaper, and typically completely free.

    However, it is essential to notice that the £10,906 loan is meant to cowl each your tuition charges AND dwelling bills, and the schooling charges for many Master’s programs sit at round £9,000 – £11,000. This implies that the loan will doubtless solely cowl your tuition charges, and you will have to seek out the cash to cowl your dwelling bills elsewhere.

    As of 2018, the federal government has launched Student Loans for PhDs as nicely. They’ll provide you with as much as £25,700 to cowl your entire course.

  • You do not repay your Student Loan in the event you transfer overseas

    I'm going on an adventure the Hobbit

    Credit: Warner Bros

    As a lot as we might love this one to be true, it’s actually a delusion that you do not have to maintain repaying your Student Loan in the event you transfer overseas.

    No matter the place on the earth you are dwelling, in the event you’re incomes over the equal of £27,295, you have to be making Student Loan repayments.

    The annoying factor is that you need to take the initiative of contacting Student Finance your self to allow them to know you are working overseas and arrange your repayments – it will not occur mechanically because it does within the UK.

    If you do not repay the quantity you need to, you may be anticipated to pay the backlog of months you have missed (typically as a lump sum!) if you return to the UK, so it will not work as a trick to defer funds both.

  • Looking for extra important information in your funds? Head over to our information on the important cash classes you need to have been taught in class.