Here’s what you should know about student debt

Student loans are back in the news, with new government plans saying those starting university next year could pay off their loans for 40 years after graduation.

That goes for England, with the repayment period being extended to reduce the bill for taxpayers, the Government said.

Under the current system, loans are amortized after 30 years.

There will also be a change in the income level from which you start paying off your student loans – with a reduction from £27,295 to £25,000.

Here are the basics for England and Wales.

Most people who go to college take out a two-part loan – for tuition (the amount you pay at college) and a living loan (for living expenses).

The amount of the maintenance loan depends on your household income.

For example, if you completed a three-year course at £9,250 a year and are getting £6,378 a year on a living loan, you would end up with £46,884 in debt.

That’s before you add interest, which ranges from 1.5% to 4.5%.

It’s unlikely you’ll ever pay it all back (more on that later) — but having just that much debt hanging over your head could be pretty daunting.

But student debt doesn’t work like other loans.

Many graduates will find just a few pounds coming out of their monthly paycheck.

There are some major differences between a government student loan and any other:

It might be easier to think of it as a bit like a tax.

Repayments come straight from your paycheck and the amount you pay increases the more you earn.

At the moment, graduates won’t start paying back their loans until they’re making over £27,295 a year.

In addition, you pay back 9% of your income.

Graduates earning £30,000 a year would pay back around £243 a year (just over £20 a month).

But remember, we also need to consider interest rates.

Almost every loan you ever take out will accrue interest — that’s the fee for borrowing the money.

With student loans, the amount of interest you pay depends on two things. Number one is the Retail Price Index (RPI) – which is a measure of inflation and is currently 1.5%.

Number two is how much you make.

After you graduate, you’ll pay anywhere from 1.5% to 4.5%. The amount increases the more you earn.

During your studies, you will be charged a flat rate of 4.1% interest, which you will not repay until after you graduate.

Under the new plans, student loan interest rates for new borrowers will be lowered and capped at inflation.

One of the main reasons for increasing tuition fees in 2012 was that the government wanted to reduce the amount paid out.

The idea was that the students would pay their tuition themselves and not the taxpayers.

However, higher fees for students meant more amounts of money were lent by the government.

As the chart above shows, the amount the government lends has increased every year.

The number of enrollments in undergraduate courses has also increased during this time – which is one of the reasons why the government is awarding more money.

The reality is that most graduates don’t pay back the full amount they borrowed until the debt is paid off after 30 years.

Social mobility charity The Sutton Trust estimated in 2017 that 81% of students would not pay back their loans in full.

The government’s Office of Budget Responsibility estimates that only 38% of total funds and interest are being repaid.

By asking graduates to start paying back £25,000 and keep paying for another 10 years, the government hopes more will pay back their loans in full.

Regardless of where you are in the UK, above a certain limit you will pay 9% of your income.

There are a few differences between England and Wales, Scotland and Northern Ireland.

In Scotland you start paying back your loan when you are earning £25,000 a year. The annual interest rate remains at 1.1% throughout.

In Northern Ireland the income limit is £20,000 and the interest rate is also 1.1%.

A version of this article was first published in January 2020.

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