Paying off your student loan – How does it work?

Paying off your student loan – How does it work?

No one likes the feeling of being in debt. Not only is it financially beneficial to pay off your debts, its better for your own peace of mind too. Learning about your own specific situation is a big help to relieve the heavy weight that is a student loan.

Paying off debt is a priority

Paying off a student loan or any debt is something that should be done as quickly as financially possible. Student loans of a sizeable amount can take years to pay off especially if you factor in the interest in which builds up over time. Repaying early is the best option as will speed up the process providing less debt to worry about and in the long run you will be paying less interest. As student loans do not have any penalties for early payment this is a good opportunity for you to clear your debt.

Need to know info

Here are some things to know about paying your student loans:

You are not obligated to make repayments until the April after you graduate and even then, you will only start making these repayments when you are earning over £21,000. Any loan that is not paid back within 30 years is written off. If you are permanently unfit to work the loan is also written off.

The payments will automatically be taken out of your salary each month and you will be able to see how much on your payslip. However, if you are self-employed or a freelancer you can find out how to make repayments on the student loan repayment website.

There are two different types of student loans available that vary depending on where you live or choose to go to college.

  • Tuition Fee Loan: This type of loan covers your course fees. It is paid to your college or university and you pay it back once you course is finished, and you start earning over a certain amount.
  • Maintenance Loan: This loan is what contributes to your living costs whilst you are attending your full-time undergraduate course. The amount you receive will depend on the income of the household, however if you are taking your course off campus by distant learning, in most cases you will not qualify for this type of loan.

Special consideration for student loan

A special support grant is put in place to replace a maintenance loan in certain circumstances. It goes towards books, equipment, travel or childcare. To qualify for this loan, you need one of the following circumstances:

  • To be a single parent or foster carer to a child or young person who is under the age of 20 and is in full time education.
  • You have a partner, but he/she is a student and you have a child or young person who is under the age of 20 and is in full time education.
  • You have a disability and qualify for the Disability Living Allowance, Disability Premium or Severe Disability Premium
  • You qualify for Personal Independence Payments or Armed Forces Independence Payment you’re deaf and qualify for Disabled Students’ Allowances; you have been treated as incapable of work for a continuous period of at least 28 weeks
  • You have a disability and qualify for income-related Employment and Support Allowance
  • You’re waiting to go back to a course having taken agreed time out from that course due to an illness or caring responsibility that has now ended
  • You’re aged 60 or older.

If you qualify in any of the above, you do not have to pay back any student loans unless you leave the course early or if you have been paid too much by error.

Saving tips

Knowing when your due date for paying off your complete student loan is the first step in making the necessary changes in your repayment plan. This can help you to budget each month how much extra you can pay monthly to move that end date closer. For example, the average graduate in the UK from a three-year degree carries more than £50,000 of debt. To pay your debt off in 25 years you will need to pay £166.67 a month. To bring the end date closer to maybe 20 years instead, can you make the necessary changes to pay £208.34 each month? This small change of 5 years will make a huge difference on the interest is added on your debt.

This can be tricky to do. Here are some tips on saving to get rid of the burden that is a student loan:

Set a budget. Knowing how much you must pay each month to keep up with the debt can help you to cut down those unimportant expenses. Tally up your essential payments including your student loan can help you see how much you have left of your monthly wage and whether you can put some money away or make an extra payment towards the debt.

Pay larger bills first. Getting your larger bills paid and out of the way can help you to budget more realistically. This can give you a clearer idea of your monthly savings.

Take out cash or use prepaid cars. Taking out cash each week for the week ahead makes it easier to keep up with how much you are spending. Tapping a card is a lot easier but handing over cash makes you think more wisely about the things you are buying and if they are necessary purchases.

The 50/30/20 rule. Following this guide is a really easy way of budgeting more effectively. Here is how it works. 50% of your monthly wage should be spent on essentials. 30% is to be go onto your ‘desirables’ which is any other monthly expenses that don’t come around often such as for social, or special occasions. This is also for treating yourself, everyone deserves a treat. 20% of you monthly wage should be put straight into your savings. Even if you cannot put away 20% each month, a setting aside what you can means you will build up saving.

How building a financial plan can help

Making a financial plan involves looking at your finances as part of the bigger picture of your life, including your goals for the future. Your financial plan must include every expense including your taxes, insurance and pension to give you the clearest view on your financial situation. A financial plan can help you: Prioritize your goals, save money, focus on the bigger picture, organize your finances, and to worry less about money. To create the best financial plan that fits you without the hassle of doing it yourself is when having an adviser works best. They can look over your whole financial standing and offer the best advise that fits you personally on how to save, balance and payback those loans.