One of the things that put a lot of people off going to university is the idea of them having to pay back their student loans. People start to worry about how much debt they’re going to be getting into and what happens if they don’t pay it back. To settle these issues, here’s what happens if you don’t pay student loans.
What happens if you don’t pay all your student loan?
It is unlikely that you will pay off all your student loans. There are seriously high-interest rates and wages tend not to exceed a certain amount the repayment threshold until a few years after you graduate. In fact, 83% of university leavers may not earn enough to even clear their debt.
The money is taken off your salary before you receive it once you do exceed the repayment threshold, but in comparison to the salary you’ll be receiving it as a relatively small amount – hence why a lot of people never pay off their full loans. Therefore, student loans clear the debt 30 years after you leave university. So, if you’re concerned that you are not able to pay off your student loan – don’t worry!
Will my student loan affect my credit rating?
Your student loan does not impact your credit rating, but if you was to ever to apply for a mortgage, banks and lenders may request information on the progress of your debt. This way they can decide on how eligible you may be to take on more debt. But overall, the debt is unlikely to get in the way – even if you’re trying to get a mortgage.
How do I pay back my student loan?
Your student loan is taken off your salary before you even get paid, just like national insurance contributions, pension, and taxes. You will only start to pay back your student loan once you’ve earned over the threshold, and your student loan is then only taken off what you earn over the threshold. So, if you only earn £200 over the threshold each month, you will pay back 9% of £200 each month (£18).
You do not need to actively do anything to pay your student loans, however, you must make sure you let them know should you leave the UK or if you stop working. Generally, you should ensure that your employment and financial position are always up to date on the government website, as this helps the government to take the right amount of tax and the right amount of student loan.
When will I start paying my student loans?
You’re eligible to repay your student loans from April after you finish or leave your course (for full-time courses), assuming you’re earning over the threshold. Part-time students will be eligible for repayment from April for years after the course starts or April after it finishes – whichever comes first.
Will my student loan affect my credit rating?
Since student loan repayments are taken in the same way that income tax is taken, those who are employed by a company will not need to worry about missing monthly payments. So long as your employment details are up to date, it is unlikely that your parents will go wrong. However, if you fail to update your employment details, you may be charged penalties.
Anyone self-employed has to pay their student loans in the same way that they pay their income tax: through a self-assessment. Just like with tax, failing to do so can incur penalties.
One of the biggest stresses of becoming a student and beginning your time at university can be money. Learning to budget, be financially independent from your family and live away from home is a first for most of us when we start uni. What’s more, the money stress isn’t helped by how confusing the student finance system can be. Your parent’s income will affect your student loan, and it’s important to know how it does.
Will my parent’s income affect my loan?
Firstly, it comes down to whether you are a Dependent Student or an Independent Student.
Everyone’s student loan comes in two parts – tuition fee’s and maintenance loans. Everyone, no matter their parent’s income, is entitled to up to £9250 a year in loan to pay their tuition fee’s. That’s as long as you are a full-time resident in England (and have been for at least three years.) Your uni will decide the fee’s and the money is paid directly to them.
Dependent student
Most students are dependent students meaning, you have some support from your parents. If you’re a dependent student, that means that the amount of student finance you receive will be determined by your gross taxable household income. That is essentially what your parents make in a year. You’re generally classed as a dependent student if you’re under 25 on the first day of your course and are financially dependent on one or both of your parents- even if you do not live with them.
This means everyone who lives in your household’s income will be taken into account. For example, if your Mum and Dad live together, both their incomes will be added together to determine the amount of loan you receive. However, if you just live with your mum or dad it will be on their income alone. It’s important to remember that this doesn’t just apply to your biological family; this may also include a step-parent.
Independent student
Sometimes, students can be classed as independent students. This means that your maintenance loan amount will not be assessed on your household income, for one of the following reasons;
1. You have custody of a person under the age of 18 on the first day of the academic year.
2. You’re 25 or over on the first day of the academic year.
3. You’ve been or are still married or in a civil partnership before the start of the academic year.
4. You have no living parents.
5. You’ve supported yourself financially for at least 3 years.
6. Your parents live outside the European Union and cannot complete an income assessment or cannot send funds to you whilst you’re at university. For example, if you are a refugee this may apply to you.
7. You are permanently estranged from your parents. If this is the case, you will need to provide evidence for this. For example, letters from social workers, marriage certificates or P60’s from employers. If your evidence is accepted you will receive the maximum amount of student loan plus any benefits you are entitled to.
Home or away?
Explained: How does my parent’s income affect my student loan?
As well as your parent’s income, whether you’re living at home or away from home will also play a role in how much you get.
Whether you’re living in halls or found a place yourself, living with or without your parents will also affect how much maintenance loan you get. If you choose to live at home for uni, you will be entitled to less than if you move out. The amount of maintenance loan you get is worked out of a sliding scale, starting at household incomes below and up to £25,000.
However, the highest thresholds work slightly differently depending on if you live with or without your parents, and living in or outside of London.
Hold on, because it gets complicated; If you’re living at home and with your parents and your household income is above £58,222 you will receive the minimum amount, which is £3,410.
If you’re living away from home and outside of London and your household income is above £62,249 you will receive the minimum amount of maintenance loan, which is £4,489.
Likewise, if you’re living away from home and in London and your household income is above £69,977 you will receive the minimum amount of maintenance loan. This is £5,981. Bear in mind that your exact amount of loan will be dependent on the exact income, down to the last penny.
