Paying back student loans
When the 'free' money gets costly.
Repaying student loans is a necessary evil once you've graduated. Fortunately, payback time doesn't always have to be painful. The interest rate on money borrowed from The Student Loans Company is always based on the rate of inflation, so if you can't afford to start paying it back straight away there's no need to panic. You won't be stuck with runaway interest charges and a debt that grows steadily more enormous with each passing year, unlike many other loans that charge higher rates.
Loans from 1998 and after
The most modern version of the Student Loans Scheme (the student support scheme) lets you borrow more money than ever before, but also wants it back from you sooner. As soon as you start earning more than £15,000 per year, they want their pound of flesh. They take 9% of any income over this amount, until the loan is repaid. If you don't like that, tough: they'll get it taken out of your wages by your employer and the Inland Revenue as you earn it.
Loans from before 1998
The older type of loan scheme is described as a 'mortgage style loan', with a higher earnings threshold before you have to start paying the money back. You can defer repayment for a year at a time if your earnings are less than 85% of the national average, i.e. if your monthly earnings before tax are £1,780 or less. Monthly repayments are split up into roughly equal instalments spread out over several years (between five and eight).
Repayment Holidays
If you're due to start paying your student loan back on or after 2012 you will now have more choice over how you repay them. Graduates will have the option of taking a break from their loan repayments for up to five years. If you're a 2008/09 entrant who leaves higher education and are due to repay your loan ahead of 2012, you won't be eligible for the scheme. For 2008/09 entrants to be eligible you need to be on a course lasting three or more years and leaving higher education in 2011.
Graduate loans
These are not from the Student Loans Company. Various high street banks will allow students to convert their overdrafts, and increasingly their credit card debts, into graduate loans. The terms and conditions vary from bank to bank, but the overdraft is usually converted into a moderate-to-low interest loan when you're earning regular money.
The interest rate is usually a fixed one, and regular payments of a set amount are taken out of your current account every month. It's worth shopping around for the best deals, and you don't necessarily have to convert an overdraft with a particular bank into their own graduate loan scheme.
Credit files
Information on your student loan will soon be included in your credit file. This means that if you miss a payment to the student loan company it will show up as a black mark on your credit rating, making it more difficult to get credit. The information is expected to be included in credit reports towards the end of 2008.
