Understanding Student Loans: The Ultimate Guide | The Student Pocket Guide

The new academic year is just over a month away from starting and for many students who have just completed their ‘A’ Levels; the run-up to the start of their course at university is a very hectic time. After receiving their results and finding out which, if any, university they will be studying at, they have all manner of things to arrange before they enrol and attend their first lecture/seminar…

Accommodation, paperwork, clothes, stationery and textbooks are all essential, but without some finance behind it, paying for all that would at best be a massive challenge. To meet the cost of higher education, the vast majority of students take out Student Loans, which are taken out in their thousands every September, but how do they work and what do they entail?

What is a Student Loan?

Student Loans enable students to pay for everything they need – namely tuition fees, accommodation and other basics including food and utilities. They’re taken out every year of a course and are typically repaid as soon as a student graduates and enters full-time, paid employment.

Student Loans come in two forms, both of which are equally useful. They are:

  • Tuition Fee Loans – pretty much self-explanatory. They help to pay exclusively for tuition fees, with the amount paid our dependent on how much the fees are.
  • Maintenance Loans – they’re given out primarily to pay for every other cost incurred during a course such as food, textbooks, utility bills and living arrangements.

Understanding the application process

Filling in all the paperwork is usually the hardest part of applying for any loan, but nowadays, applying for a Student Loan can be done online on this website. To apply for a loan, you will need to do the following:

  • Enter your name, email address and bank details
  • Ensure you know how much your parents earn. This has a large bearing on how much money you’re entitled to
  • You have to apply every year, in case your circumstances change
  • Make sure you have your passport number and National Insurance number handy
  • You’re given a Customer Reference Number to use for logging in- make sure you have it somewhere safe

All of this will make the application process a little less stressful than you may have anticipated, but you need to apply as soon as possible if you’re able to get your hands on the finances needed to make higher education possible.

Common application mistakes to avoid

As with anything else of similar importance, getting things wrong can be costly. Here are some of the most common mistakes made when applying for a Student Loan which should be circumvented at all costs:

  • Giving some money from your maintenance loan to your university for tuition fee payment. The Tuition Fee Loan covers the cost of fees entirely
  • Thinking taking out a Student Loan affects your credit score. It has impact upon that whatsoever, so you haven’t a thing to worry about
  • Thinking you don’t have to pay back interest. In actual fact, you do, but it depends on how much money you earn after graduation

Overdrafts and loan eligibility

Student Loan eligibility is seldom dependent on your credit history. It will only be affected if you actually owe money to the Student Loans Company, the main lender to students. Something else you need to know is that repayment of loans from them is manageable which means that they’re unlikely to come knocking on your door asking for immediate payment.

When it comes to overdrafts, the important thing is to be wise when activating it. The less you use, the less you have to pay back later on in life, but there are a few other things to remember, especially when added extras are concerned.

“As almost all student accounts come with overdrafts as standard these days, look at what is available alongside the account, instead of simply opting for the one with the highest limit”, said Dan Bowen in a piece for the Guardian.

Credit Rating and eligibility

Your credit score is determined by numerous factors. Past debts play a big role in a credit score result. “As long as you don’t owe the Student Loan Company anything already, you should be fine. Having a bad credit rating has no impact whatsoever on your eligibility for a loan, which will come as a relief to many people who have a history of bad financial management. You can make any cuts to increase you’re saving, then set up a budget for essentials and stick to it,” says a spokesperson from Yorkshire Building Society. Repayments are only taken from future earnings, which will come as a relief to those of you with concerns about your credit rating.

Repayment and coping with loan debt

This is the biggest concern that many students will have, especially when graduation is on the horizon and the search for that first post-graduation role begins. Something that all students need to know about the debt accumulated through Student Loans is that it’s a ‘good debt’ – this means that it can be paid back in a manageable way and there is no set time limit on repayment in full.

Repayment begins if you find a job after graduation that pays at least £21,000 a year from 2016. From that point, you pay a small amount back every month, which doesn’t eat into your income, but the more you earn, the more you’re expected to pay back. If notifying an employer of your loan, the money will be taken out of your pay cheque automatically.

Interest is payable, but like the total initial repayments, the amount is dependent entirely on your income. If earning at least £21,000 per annum but less than £41,000, you will pay anything up to 3% on interest. Anyone with student debt who earns over that threshold will pay more than 3% interest, with the amount rising for every extra pound earned.

It’s possible to repay all your debts in one go. However, to do this, you need to make sure you have the funds to do so, and you have to contact the Student Loans Company directly.