Student loan UK: Guidance on extra support issued as debts are set to reach £560billion

Martin Lewis Money Show viewer discusses her past debt

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Student loans are the main method of direct Government support for higher education students but the sheer amount of money lent out has created a huge debt obligation. According to official statistics released from the House of Commons Library in December 2020, more than £17billion is loaned to around 1.3 million students in England every year.

The total value of outstanding loans at the end of March 2020 stood at £140billion in total.

On top of this, the Government forecasts the value of outstanding loans to be around £560billion by the middle of this century.

For individual students themseleves, the average debt among the cohort of borrowers who finished their courses in 2019 was £40,000.

This is a lot of debt to carry into a job market and the Government apperars to acknowledge these difficulties, noting that they expect only 25 percent of current full-time undergraduates who took out loans to repay them in full.

Student loan repayments are deducted from earnings as a graduate enters the workforce, akin to a seperate tax to pay on top of National Insurance and income tax.

This may be disheratening to those who are just looking to better their career prospects but John Ellmore, the UK Director of Operations at NerdWallet, reminded students and graduates that this debt may not be as impactful as many fear: “Although students may feel like they have a lot of debt weighing down on them, in reality, it isn’t like other forms of debt and it won’t affect your credit score.

“You only start repaying your loan once you earn over £26,575 a year (Plan 2), and this will only be a small percentage of your income taken directly from your salary.

“Unless you are a very high earner that is likely to fully repay your loan, it will often make more financial sense for students to simply take out the loans and make these minimum repayments when required.

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“If you make overpayments on your loan or pay for your tuition or maintenance costs upfront, you may end up spending money that you otherwise wouldn’t have needed to repay.”

For those who may need additional financial support through their studies and early careers, John went on highlight a number of additional funding and apecialist account options: “Tuition and maintenance loans will be the first port of call for most students when they start university, but it is worth investigating if any extra funding is available to you.

“For example, there is a Special Support Grant for those who qualify for income support, a Disabled Students Allowance and grants for student-parents.

Government loans and grants aren’t the only funding options available. Universities will offer their own grants and bursaries which will have different criteria.

“For example, many will offer bursaries for students in financial hardship, for academic ability, for extra-curricular activities, for certain nationalities, and more.

“In short, check your university’s website to see if you qualify for any of their schemes.”

John concluded by examining the best options for the newly graduated: “When you are a student it is worth opening a specialist student current account to help you with your student costs.

“They typically offer extra perks that standard current accounts won’t have, such as an interest-free overdraft allowance.

“While details will differ between banks, most student accounts will allow you to dip into your authorised overdraft without paying any interest, which can be useful if you’re waiting for the next instalment of your student loan!

“Once you graduate, many banks will switch you to a graduate account which still has the benefit of an interest-free overdraft for one to three years.

“Check if your bank makes the transition automatically or if you need to do it yourself.

“However, it is still best for students to try to create and stick to a budget without relying on their overdraft or other forms of credit.

“You still need to pay off an interest-free overdraft, so students should try not to use it regularly for their daily spending.”

Do you have a money dilemma which you’d like a financial expert’s opinion on? If you would like to ask one of our finance experts a question, please email your query to personal.finance@reachplc.com. 

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