Full Guide to Managing Family Finances – Chapter 8
Should I take out a student loan? Will it affect my future mortgage opportunities? All 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
Are student loans enough to live off? As the media focuses on quoting high figures for student loans, there is another aspect to consider. Whether the amounts borrowed are enough to live on and still study effectively. Many students have resorted to part-time jobs to help sustain their living costs. Some have become dependent on the bank of Mum and Dad to help support them through this crucial period of their lives.
However, another choice was the maintenance grant (not a loan). The maintenance grant was available to students living in a household where the total income was less than £42,620 per year. A means-tested application would show how much a grant a person could get. If you decide to leave the course, you may have to repay some or all of the amount you got.
In the budget of 2015, the maintenance grants were discontinued. However, the maximum amount you could borrow was higher. This would lessen the likelihood of students needing to top up their income with part-time jobs. However, borrowing even higher sums could be a psychological barrier that may prevent some eager students from contemplating a university course.
Will a student loan affect your mortgage rate?
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.
Can I Repay My Student Loan Early? Is It Worth It?
You can repay student loans early. However, you may want to consider whether this is worthwhile given that the interest rates are so low. Low earners may not need to repay at all. Overpaying every month will not reduce the overall debt. On the other hand, if your student loan is impairing your ability to get a mortgage, it could be the best option. Parents who think about paying upfront tuition fees are also going the wrong way about sensibly spending their finances. Student debt is good debt (possibly the only one) as the interest rates are so low that it may never have to pay it back. So, parents would be better off saving that lump sum towards a future house deposit instead of worrying unnecessarily about huge debts that are not relevant.
There will undoubtedly be many changes to the student loan system. These changes could lead to more or fewer students going on to full time higher education. Sometimes peoples talk around about student debt are enough to put off the most capable young people. However, looking at all the pros and cons of the system, you can see that it is more like a tax and not a loan. It is also like a system of contributions to higher education where the lowest earners achieve the most benefits.
Watch this video by Martin Lewis: Student Loans Decoded
Advantages of student loans
Unlike standard loans such as mortgages, car loans or even payday loans from direct lenders, the student loan is paid back directly from earnings. Firstly, you only begin paying back after reaching a certain income level. Secondly, the amount to repay is dependent upon how much they earn. One of the best advantages is that student loans are not on credit files. Therefore, there is no chance of a debt collector appearing at your door.
It does not matter what amount you borrow. Repayments are solely determined by ability to pay back and you may end up paying all of the sum borrowed, some of it or none at all. Before being put off by the large figures quoted in the media about how much you can owe you should look at how much you could repay. Then take advantage of the opportunity to fulfil your dreams of a university degree.
At Cashfloat, we try and 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. You will learn a profession and eventually get a good job in your chosen field.