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Is a Student Loan Worth the Risk?

by James McGregor
written by James McGregor

Student loans are the new way to pay for university courses and it means that students may have to repay the money that they use to pay for their degree and their living expenses. This is something that some people get worried about but there are advantages and disadvantages that need considering.

More Education

Staying in education can have lots of advantages. Many young people blossom at university, with increased confidence as well as knowledge. It can give them a chance to experience life away from home in a safe and nurturing environment and they can enjoy learning new things for another three years. Learning can be fun for a lot of people and once we start work, we have less time for learning and so having the opportunity to continue with our education can be very valuable and it is good to do it at a time when we are less likely to have families and large financial responsibilities.

Better Job Prospects

There are many employers that are looking or workers that have a degree. This means that it is important to have one and some jobs are not even that worried about what degree you have, just that you have one. With many more young people getting degrees, it does mean that there is a more educated workforce to compete with for jobs and so it could be necessary. Of course, it is best to get a degree in a subject that you want to get a job in but it can be difficult to choose a career at such a young age. However, doing something enjoyable is a good start as it will hopefully lead to an enjoyable career. It should also lead to a job that is better paid and although money cannot buy happiness, being able to afford everything that you need is important and a better paid job can help with that. You may also have more job options if you have a degree, which means that you are more likely to find work.

Loan Repayments

The loan repayments are very different to a regular loan. They are taken out as tax before you get paid (unless you are self-employed). You will only have to repay once you start earning over a certain amount of money and then there is a variable scale which will increase as salary increases. This is set up to make repaying affordable. It is also not seen as loan and so will not appear on a credit record and therefore you will not be discriminated against when being considered for a loan. It will impact mortgages, but only because they will look at your disposable income to make sure you have enough to repay the mortgage. The maximum loan repayment is pretty small though and as you will have to be earning well to have to repay that amount, you should be able to get a mortgage anyway. It is worth checking out the repayment amounts and thresholds before taking out a student loan, just so you are sure of what to expect and whether you will manage.

Loan Written Off

Thirty years after graduating a student loan is written off. This means that it will no longer need to be repaid. So, if you have been a low earner for some or all of the thirty years, it is likely that you will not have repaid the loan. A majority of students never repay their loan in full. If you feel you will make the maximum payments each month, then it can be worth repaying the loan early and then you will not pay so much in interest. However, if it is likely that you will not repay it all, then you will be better off not repaying any of it early.

Government Changes

It is worth being aware that student loan rules are made by the government. They have tweaked them before and it could be the case that they will again. This could be favourable or unfavourable so it is a little risky. It is not like a bank loan, where you will have terms and conditions that cannot change. The government are able to change the terms of the student loan. This could have an impact on the thresholds for repayment, the interest rate and most importantly the thirty years before it being wiped off. This does make the loan a risk, but it is unlikely that any government would make a huge unfavourable change to the loans as there would be a big backlash. Even if their voters are not students, their parents or grandparents could be and it will therefore have a big impact and so big policy changes are unlikely but small changes much more likely.

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Students

Budgeting Tips for Students

by James McGregor
written by James McGregor

Students will normally find that they are short of money. This is because the student loan is not much money and students will also be unlikely to earn very much, if anything, while they are studying. Unless they are doing an apprenticeship degree, which will allow them to be paid, or they have a part-time job that pays well, they will need to be used to being frugal. However, having suddenly been given a big lump sum of money, it can be difficult to hold back on spending. However, there are some things that could help. 

Calculate Weekly Budget

It is a good idea to work out how much money you will get over the year and take out big amounts you will need to spend such as rent and bus/train tickets. Then you will know what you will have left. Divide this by the weeks in the year and you will be able to work out how much you can spend in a week and this will help with being able to make sure that you do not understand. It can be worth actually setting a lower budget than you can afford because this will allow you to have a bit of extra money in case you need it for emergencies. You may also not need money in the holidays if you visit parents and they pay for everything. However, by calculating a budget for every week, you will be sure to have enough money left for everything that you need over the year. 

Parents Give Money

It is worth noting that the maintenance loan is means tested and this means that if parents are earning well, they are expected to give the students money as how much you get depends on the household income that you live in during holiday time. Students may have to explain this to their parents and ask them for help and many parents will help out like this. However, there are some that will not and so this can make budgeting very difficult because there will be far less money available. Obviously, you will still be able to calculate how much money you have available to spend each week, but it might just not be enough. There might be bursaries available in this circumstance from the university but it may be necessary for you to do some part time work to support yourself or work in the holidays. It is a good idea to be completely aware of how much money you will have and how much you are likely to spend so that you can budget really carefully in this situation.

Keep Spending Down

It is important to make sure that you know what is necessary for you to buy and what is a luxury. Keeping spending to just necessities will make a big difference to how much you are spending and make it much easier for you to be able to stick to your budget. You will therefore need to think about this. You will need to pay your rent and for any bills you are responsible for. Often utilities are included in the rent but you will find that there may still be some things you have to pay for such as your mobile phone and you will need to pay for food, travel and study aids. There will also be medication and dentist bills to pay and then toiletries and cleaning products and you may need clothing. It can be good to ask family and friends, if they ask what you want, to give you clothing, toiletries and make up, for gifts, so that you are able to save money. Make sure you ask yourself whether you really need the items that you are buying and then only buy things that you really need. Try to make things last, such as clothing, so that you can delay buying new things until you finish your course.

Keep a Savings Account

It can be a good idea to have a savings account as well as a current account. Keep the bulk of the money you have in the savings account and set up a weekly transfer of your budgeted amount into the current account. This will make it much harder to spend more than you have budgeted to. Another way is to draw out cash each week and just spend that cash, although if you are buying online, then you will not be able to use cash, so this may not work for everyone. It is still good to have a savings account as it will pay some interest and this will be better than nothing, which is the amount you get in a current account. Do compare though as you may find that there are some student accounts that are worth getting. A savings account will also allow you to be able to keep some money tucked away for emergencies, which will give you peace of mind and be very useful too.

Keep a Constant Check

It is so important to keep a constant check on the amount of money that you have and whether you are spending more than you can afford. It can be worth doing this near to holidays as it may be that you will be able to get some temporary work to boost your funds. You will be able to plan this in advance if you know what your financial situation is and this will enable you to apply for things early as lots of students may be looking for work in the holidays so you will have to get in early if you want something. You might also be able to adjust your spending so that you are spending less as well, to make sure that you get back on track and do not run out of money before your next loan payment is due.

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Students

Money Saving Tips for Students

by James McGregor
written by James McGregor

Students are often short of money. This is because they cannot usually work full time and study full-time at the same time and they are young so are not paid that much money when they do work. They may be able to borrow some money, but this will not be much and they often have to use most of it to pay for rent and food. Therefore, they can often benefit from some money saving tips. 

Learn about Budgeting

It can be a wise idea to get a good idea about budgeting before you start your course. It can be hard to manage money when you are a student. Many students have not had to do this before as they have been living with parents and it can be particularly hard when you get a loan paid to you each term as you have a lot of money and you need to make sure that you make it last until the next instalment comes. This is a big ask of anyone. Earners will be used to being paid weekly or monthly and so it is much easier to manage compared with how students are expected to cope. Even having a basic understanding of the importance of calculating how much a week that loan works out to be can help. Obviously big chunks will come out too, such as rent so those need to be allowed for as well. It can be worth practising writing out a budget and keeping to doing this once starting at university. 

Understand about Cheap Deals

It is wise to have a good understanding of cheap deals. It can be very tempting to see that a shop has a sale and think that you need to buy things from there. It is worth noting a few things though. A sale item is only a bargain if you were going to buy it anyway. So, if you regularly buy a certain brand of cheese and it is reduced, then stock up at the lower price (as long as you know you can eat it before it expires). However, if you buy something because it is cheap but it is something you would not have otherwise bought, then you are not saving money at all, in fact you are spending more than you would otherwise have done. So, it can sometimes be better to avoid sales as you could end up spending more money than you otherwise would. 

Consider Working

It can help if you get a job. Of course, it is important to get a good life balance and this means that you need enough time to study, some time to rest and relax and enough sleep and it may not be possible to balance all of these out. However, it could be the case that you will be able to find some work that you can fit in during term times or that you can find some in the holidays that will allow you to have more money when you are at university. Many students will look for work in supermarkets and places like that, where they can change shifts according to their availability. However, there may be temp jobs that they can do in the holidays as well. If this feels a bit too much, then it could be possible to do small freelance jobs online. If you are creative, for example, showing examples of what you can do on social media can sometimes lead to job offers. Although these might just be one off jobs, it can still be worth it as you will get a chunk of extra cash. 

Try to Avoid Borrowing

Although most students have student loans and this is borrowing, this is not the sort of borrowing you need to be avoiding. There are student credit cards and overdrafts available as well as other types of loans. This means that students could easily be tempted to get some extra money, particularly if they do not have much of a student loan available to them. Loans are means tested and parents are expected to give their children any money they need but not all parents do this. However, borrowing can be problematic as it can cost a lot of money. It can be easy to see borrowing as ‘free’ money that you can spend but there is always a cost involved. You will find that there will be interest charged and sometimes fees as well which means that you will have to repay a lot more than you borrow. It can be useful to know what borrowing options are available for emergencies but you do not want to have too many loans and too much extra to repay and worry about. Remember, it is only student loans that ask for no repayments until you get a job, all other loans will charge interest right away and most will need regular repayments as well. Make sure you think hard and have a full understanding of how the loan works before you take it out. 

Bank of Mum and Dad

It is worth thinking about borrowing from your parents or asking them to give you money to help out. If they normally buy you gifts, perhaps for your birthday, they might be happy to give you money instead which could be more useful or to buy you things you might need but cannot afford. It might be the case that they will also lend you money that you can repay at a lower interest rate (or maybe interest free if you are lucky) compared with higher rates offered by banks. If you are not on a full loan, although the government doesn’t say it, parents will have to top up to help their children out. Otherwise, they will just not have enough money. It is worth approaching parents to ask them about whether they will do this before deciding on university so that you can be sure that you will have enough money to manage. 

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Students

Should I Repay my Student Loan Early?

by James McGregor
written by James McGregor

Many graduates that have outstanding student loans may wonder whether they should repay the loan early. They may get their yearly statement and see how much they owe and wonder if they should be paying back extra so that they can clear the debt more quickly and not accumulate so much interest on the loan. However, it is really important to make sure you have a good understanding of how the loan works before you decide whether to repay it or not. 

When is the Loan Written Off?

Student debt tends to be for a specific period if time. This does depend on the type of student loan that you have. They have changed over the years and postgraduate and graduate loans are very different, but the most common ones will have the debt written off after thirty years. This means that if the graduate has not been able to repay the debt in the thirty years, then the government will stop taking from them and absorb the cost. This means that many graduates will never repay the full amount of their loan and therefore paying some or all off early, means that they will be repaying more than is required. Therefore, in many cases it is better to not repay the loan early, if the student does not want to repay the full amount that they borrowed. However, this could change, it has already changed for new students and the government does tend to change the way the loans work from time to time even for existing borrowers, so it is really important to make sure that you stay aware of this as it could have a significant impact on whether it is better for you to repay or not. 

What is the Repayment Threshold?

The repayments are means tested. This means that only when a graduate is earning over a certain amount of money will they need to start repaying some of the loan. This amount will increase as salaries increase and so high earners will repay large amounts and low earners will repay nothing. It is expected that a salary will increase over time and so repayments will probably increase over time. The government also is likely to change the earnings threshold when repayments have to start. They have already done this a few times and this is going to increase the repayment amounts that are made.  It is unpredictable as to what impact this might have on the chances of you repaying the loan in full because we cannot tell what the government might do in the future and whether this might change again if another party is elected. However, if you are in a career where salaries are low, then there is still a chance that you will not repay all of the loan. However, if you are in a well-paid job then the chances are you will repay in full. 

When to Repay Early?

Therefore, if you think that you will have to repay the loan in full, then there could be an advantage in paying extra from the loan. This is because interest is charged on what you owe and the less you owe, the less interest is charged. Therefore repaying it early will mean that the loan is cheaper. You will also be out of debt sooner which will be a nice feeling. You may also feel that you want to repay all of the loan, regardless of whether you are obliged to. You may like to give back and repay because you have benefitted form the course and enjoyed it. This isn’t something that you have to do but it might be something that you morally want to do. 

If you would rather repay the minimum and you are not sure whether you will be working at the high salary level for the whole time you are repaying, then you may not repay it all. For example, if you work part-time to look after a family or decide to have a bit of time off work to travel, then you could find that you will miss some repayments and this will influence whether you can pay the loan back in full. Therefore, it is worth thinking hard about whether you really will be able to repay the loan or not. 

It is often not a gamble, as 75% of graduates do not repay their loan in full and so it is very likely that this will apply to you. However, new students may find that this is not the case. The government are in the process of changing the rules so that graduates have to repay over 40 years and not 30 and this could mean that many more will repay their loans and will therefore benefit from repaying early. The threshold when graduates have to start repaying has also been lowered so repayments will start earlier and rise sooner, which again will increase the chances that you will repay your loan in full. It is good to make sure that you do some calculations and think about what might happen in the future. Think about what your salary might be, whether you will be likely to have any gaps in your career, whether you will benefit more from putting money aside (perhaps towards a house deposit) rather than paying off extra money from the loan. It can be a difficult decision but discussing with others, perhaps even a financial advisor should help you to feel confident that you are doing the right thing. 

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