Student loans: Why they are different to other loans

We got our Senior Access Officer Amy to explain why student loans are not as scary as they might seem. Before working for universities, Amy spent time working as a student finance presenter for the Department of Education. Touring schools and colleges in the Southwest of England, she got a feel for the most common worries and questions around university fees and loans.

The money you borrow as part of your student loan isn’t like a normal debt. In fact, the overall figure you “owe” the government means very little.

You do sign something to say that you agree to repay the government loan, but unlike a regular debt…

• If you don’t pay it all off, it’s wiped after 30 years.
• Repayments are worked out by how much you earn, not by how much you borrow

Still not convinced? Take a look at our normal debt, such as a car or house loan, versus student debt comparisons to help you understand the differences between the two.

Upfront costs

Do I need to pay a deposit before I take out the loan?

Normal debt: Usually

Student debt: No – neither you, nor your parents have to pay anything to the university from your own savings. When you enrol in your first week at university, that’s what clicks the money over from the student loans company.

Repayments

Is how much I repay per month calculated by the total amount I owe?

Normal debt: Yes

Student debt: No – even if person A owed £10,000 and person B owed £60,000, their monthly repayments would be the same if both person A and person B earned the same amount.

Payment start date

Do I start repayments straight away?

Normal debt: Yes

Student debt: No – not until the April after you graduate. So if you graduate in July 2018, you start repayments in April 2019.

Job situation                

If I lose my job, am I still expected to make the repayments?

Normal debt: Yes

Student debt: No – if your earnings are below £25,000pa* then you do not have to make repayments. [If you do earn over £25,000, then whatever you earn above £25,000, 9% will be taken from that as repayment. For instance, if you earn £30,000, then 9% of £5,000 (i.e. £30,000-£25,0000) works out at £450 a year, or £37.50 a month.]

*Previously this threshold was £21,000pa, but in April 2018 this will be increasing to £25,000 for all loans taken out after September 2012.

Credit rating

Will my debt affect my chances of getting another loan, e.g. a mortgage?

Normal debt: Yes, usually (depending on the amount and type of loan).

Student debt: No – student loan debt does not show up on a credit report and cannot prevent you from a getting a mortgage.

Parents or spouse to pay

Can someone else make payments for me?

Normal debt: Yes

Student debt: No – your student loan debt is yours, and yours only. Even if you get married, your partner’s income does not affect your repayments.

High/Low earner

If my earnings increase or decrease, do I make larger or smaller repayments?

Normal debt: Not automatically.

Student debt: Yes – your monthly repayments are worked out by how much you earn. So someone earning £26,000 will repay £7.50 a month, and someone earning £55,000 will repay £225 a month. This will happen automatically as your salary rises or falls.

Late repayments

What if I forget to make a repayment?

Normal debt: Legal action may be taken or you may be asked for payment in full.

Student debt: You won’t forget, as repayments are taken automatically from your salary, just like tax and national insurance. [If however, you move abroad or become self-employed, then you could default and if so, the response would be similar to that of a normal debt.]

Early repayments

Can I pay off the loan more quickly?

Normal debt: Yes, although some lenders charge a fee for early repayments.

Student debt: Yes, and luckily there are no penalties for early repayment. However, you should weigh up if it is worth paying off your loan early. It may be better to put your additional cash to better use, e.g. a high interest savings account, or a mortgage deposit. Unless you have a huge sum of money and can clear (or nearly clear) your debt, it may not be worth it. Remember, any remaining debt would be wiped after 30 years.

As you can see, it’s doesn’t really make sense to consider student loans as the same as other loans. In fact, some people prefer to see their repayments as more of a graduate tax – since they go up and down according to your earnings and they are taken straight out of your payslip along with your other taxes.

If you’re still not sure, there is a lot of information on the UCL Fees and Funding pages to help you understand how everything works as well as guidance on the specific support that UCL offers to its student and advice on managing your money at university.

A word from the writer

Name: Amy York
Job title: Senior Access Officer (Policy & Development)
My job is about looking to improve the pre-entry support for care leavers, estranged students, young carers and those from Black or Minority Ethnic backgrounds. When I’m not working, I’m a hockey player, a sales shopping ninja and a full-time chocoholic.