The 2012 graduating class had an average debt of £26,000 and with the lack of work available, this will not be easy to repay. Though the war against student loan debt may seem like a losing battle, it is not impossible to come out victorious. To make their lives easier, students should learn how to repay their debts and in what order to repay them.
In the UK, repayment on student loans does not begin until the loan holder can afford to repay the money. For loans taken out prior to 2012, nine percent of salary exceeding £15,975 is automatically deducted from payslips to repay student loans beginning in April following course completion. Students taking out loans after 1 September 2012 must earn more than £21,000 annually for student loan repayments to begin. Self-employed individuals must calculate and submit their repayments.
Loan holders who do not earn more than the income threshold each year for a period of 25 years receive a free university education. However, most former students do not get off so easily and must have repayments deducted until their student loans are fully repaid. With universities authorized to charge a maximum tuition of £9,000 per academic year, it may be many years until graduates are free of student loan debt.
Experts say that student loan holders should not be concerned about their loans. The financing carries a zero percent interest rate, barring inflation, making it the cheapest loan these individuals are likely to receive. Rather than trying to pay off student loans early, former students should use excess earnings to save for a home or repay high-interest debts. Outstanding utility bills from shared student housing are expenses that should be repaid immediately because failure to do so can damage credit rating.[needhelp01]
Just because former students earn more than the income threshold does not mean they can afford the mandatory withholding for student loan repayment. Those who cannot live on remaining pay should consider moving back in with their parents to save money. Others should secure housing with flatmates to share rent and utility expenses. Former students may also be able to restructure their student loans or consolidate student loan debt to make repayment affordable.
Halifax, RBS, Lloyds TSB, and some other banks offer graduate accounts featuring an extended interest-free overdraft period. Former students with large overdrafts should consider changing their bank. The money saved on interest can be applied to student loan repayment. To avoid interest charges, they must clear the overdrafts before the interest-free period expires. Taking advantage of cashback sites, buying big-ticket items on sale, and using voucher codes when shopping online are other ways to save money.
Students can repay all or a portion of their student loans early without any early repayment penalty. Former students who meet the income threshold but cannot afford to repay their loans should consolidate other expenses to free up money. Living at home or with flatmates is another way to save money. In addition, student loan debt may be eligible for consolidation or restructuring.
