Full Guide to Managing Family Finances – Chapter 8
Should I take out a student loan? Will it affect my future mortgage opportunities? These questions and others may be buzzing around your head as you apply for your student loan. Be informed and be prepared. Read this short guide from Cashfloat to learn more about the long term effects of student loans.
- Some students find the student loan not enough
- Student debt is ‘good’ debt
- A student loan is paid back from your earnings
Getting help with tuition fees and living costs
UK students can get a Tuition Fee Loan from the Student Loan Company. This can cover up to £9,250 a year in university tuition fees. The capital is transferred straight to the university, the loan will attract interest. The rate of interest varies depending on your status and earnings (RPI, or plus 3% at the time of writing), and it is repayable as soon as a minimum income threshold is met, with repayments met through the tax system.
In full-time education, living costs still need to be met. A Maintenance Loan is paid to full-time students at the beginning of a term, and is means-tested. Student Finance England supports the Student Loan Company, and they provide more information on the maintenance loan values available here. These loans should not be confused with the old ‘maintenance grants’, which were discontinued several years ago.
Will a student loan affect my credit rating?
Details about student loans are not on credit files at the major credit reference agencies. However, if you are applying to borrow money on a personal loan or take out a credit card , you may need to give details about any outstanding amounts. When applying for a mortgage, there are two schools of thought about whether or not having student debt impacts your chances of a successful application. Graduates are sometimes the higher earners and, therefore, more likely to get approval for a mortgage application. However, if the student debt is high, it can affect the affordability factor. Lenders will need to be sure that you can afford mortgage repayments and all your other monthly outgoings.
How is a student loan paid back?
Quite unlike loans such as mortgages, car loans or payday loans from direct lenders, the student loan is repaid directly from earnings. You only begin paying back after reaching a certain income level.
A student loan is not on a credit file, so it won’t be a reason for a debt collector appearing at your door. Before being discouraged by the large figures quoted in the media about how much you can owe, consider the earning potential of your degree by subject, and the probability of you reaching that potential. If a university degree is your dream, and what will make you happy, then incurring student debt may be a necessary part of your trajectory.
You can overpay on your student loan. However, you may want to consider whether this is worth it when interest rates are low. Low earners may not need to repay anything at all. On the other hand, if your student loan is making a difference to getting a mortgage, overpaying may be the best option. Generally, however, student debt is ‘good’ debt (possibly the only one) because the interest on it is low.
Watch this video by Martin Lewis: Student Loans Decoded
Conclusion
At Cashfloat, we try to help you avoid taking out fast loans online. By taking out a student loan to cover your costs of studying and living, you are helping yourself and forging an exciting path ahead.
