Student debt guide
Student debt is a worry for many people. Many graduates are shocked at the amount of debt they find themselves in after university.
However, the amount of debt you`re in is not always the most significant thing. You should also pay attention to what types of debt you have - as some are more serious than others.
If you only took out a Government Student Loan during your studies, your situation may not be as bad as it seems. If you took out a lot of additional credit, however, your situation could be more serious.
Student Loans
Since 1998, undergraduate university students have been entitled to a student loan, issued by the Student Loans Company (SLC) and subsidised by the Government, to help fund their studies.
As a graduate, you will not be expected to repay any of this loan until you are earning an annual income of £15,000 or higher, at which point you will pay 9% of earnings above this amount towards your debt.
You will accrue interest on the outstanding balance each month (even if you are not making payments). However, for the period covering 1st September 2009 to 31st August 2010, interest rates have been set at 0% due to low inflation, meaning the debt won`t grow.
Should I be worried about my Student Loan?
Last year, independent university guide Push estimated that today`s students will graduate with £23,000 of debt - and recent graduates` debts aren`t far behind. At first glance, this can be a very worrying situation for students and graduates alike.
However, a Student Loan is a little different to other types of loan. You won`t be expected to repay anything at all unless you are earning at or above the £15,000 threshold, and if you are earning more, the amount you pay each month will be a fairly small proportion of your income (although the more you earn, the more you will pay).
Is there a `cut-off point` for Student Loan repayments?
Your Student Loan will eventually be written off if you never earn enough to make payments, or if you haven`t repaid the full amount within a certain period.
For loans issued before September 2006, any remaining debt will be written off when you reach 65, while loans issued after September 2006 will be written off 25 years after the first April of your graduation.
Other student debts
Government Student Loans are not the be-all-and-end-all of student debt. Many students find that their Student Loans do not adequately cover their outgoings, and while many can rely on financial support from their family, others may also rely on credit to get by at one point or another.
The most common form of personal debt amongst students is overdrafts. Many banks offer a student account with an interest-free overdraft facility - sometimes as much as £3,000 - and it`s not uncommon for students to reach their overdraft limit by the time they graduate.
However, the catch is that once the student graduates, many account providers will start charging interest on these overdrafts - meaning that left unpaid, the debt could begin to grow.
Many students also use credit cards and personal loans to supplement their income while they`re studying. This is fine providing they can afford the repayments, but these kinds of debt tend to carry much stricter repayment terms than overdrafts - meaning that the consequences of missing payments can be quite serious.
What to do about unpaid personal debt
If you have unpaid personal debts from your time as a student, it`s important that you have a structured plan for repaying the debt.
The best way of doing this is to create a budget. Make a note of your monthly income (i.e. the money that reaches your bank account after tax and NI) and all your regular expenses - including your debt repayments. Add up how much all of your regular expenses cost and subtract this from your monthly income. The remaining amount is how much you have left to spend as you wish.
If you find that your outgoings exceed your income, it`s important that you take action quickly to make your debts more affordable. Look at areas in which you can cut back - fewer meals out, perhaps, or cancelling TV subscriptions, can make all the difference for some people.
If you`ve tried cutting back and still find that your debts are unmanageable, it`s important that you speak with a professional debt adviser about ways to clear your debts.
There are a range of debt solutions available, each of which is designed to help with different situations and different levels of debt.
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