By Alistair McQueen
After graduating, it’s time to face the financial music. All those student loans, which might have felt like free money at the time, are now debts. And repayment is expected. Again, there are country-by-country differences that apply to loan repayment terms.
For simplicity, here we look at the situation for students in England today. The situation may be different for students elsewhere in the UK, and for students who studied in the past. But the broad principles remain the same.
All students can find detailed information about loan repayments on the UCAS website, but here’s some more information that might be useful.
Not like other loans
Student debt built up through years at university can amount to a large sum of money. A debt of £50,000 by graduation is not unusual. This could be a significant concern for many people, but it’s important to note that student debts are unlike most other debts, for 3 reasons:
- Delayed repayments: Official student debts are only paid back after the student has graduated or left university. These delayed repayments are unlike many other loans. For example, mortgage debt repayments are expected from day 1.
- Income threshold: Repayment of official student debt only begins when the student’s income, after university, reaches a set level – currently £2,144 per month before tax. Most other debts demand repayment regardless of income. Official student debt could be likened to ‘no win, no fee’. Those who earn a lot after graduating or leaving university will repay a lot. Those who don't gain too much financially from going to university may repay little or nothing.
- Debt shelf-life: If the official student debt hasn’t been fully repaid after a set period, currently 30 years, the outstanding debt is written off and no more repayment is expected. Very few other loans carry a similar shelf-life.
For these reasons it’s more appropriate, and probably less scary, to focus on possible monthly repayments, rather than the total size of the total debt itself.
How much are monthly repayments?
A relatively simple calculation has been agreed to set how much official student debt is repaid over time. After university, each month students must repay the equivalent of 9% of their earnings above the monthly income threshold of £2,144.
So, if a student after university is earning £2,000 a month, no repayment is needed at that time as their earnings are below the threshold. But, if they were earning £2,244 per month, that would be £100 above the threshold so they’d need to repay 9% of this £100, just £9 a month. Meanwhile a student after university earning £3,144 per month would be £1,000 above the threshold, so they would need to repay 9% of this (£90) each month. And so on.
Given the often-low levels of repayment, it’s recognised that many students will not repay their full debt over their working life.
Ex-students aren’t expected to work out these figures themselves each month. Like it or not, these calculations are typically done by their employer, and repayments are made direct from payroll to the student loan company.
Is education worth it?
More people are going to university than ever before. Many see this as a good thing, but the increase in student numbers has increased the cost of funding universities. And it’s made the budgeting challenges and loan repayment practicalities more complicated for students themselves – and often their parents too.
We hope our short guide has raised your awareness of the possible costs and the help that’s available. And hopefully it’s eased some of the concern about the big debt numbers that could potentially materialise.
Much focus is put on the cost of university as it’s relatively easy to quantify. Less focus is put on the value of further education – both financial and personal. Going to university is an investment in the individual. And for many individuals it could be the greatest investment of their life.