How to handle your student debt

If you’ve recently graduated, you’re probably wondering when you’ll start repaying your student loans. You might also be wondering about student loan interest rates, how much student debt you have, and how you should start paying off your student loan.

Student debt can be a daunting subject, as there are multiple intricacies to understand, but we’re here to help you through it. We’ve created an insightful guide on everything you need to know, and we’ve also thrown in some handy budgeting tips to help you take charge of your postgraduate finances.

What is a student loan in the UK?

Most students will be required to take out a loan (or multiple loans) to study at university. However, before doing so, it’s important to make sure you understand exactly what a student loan is, and what the repayment process will look like.

Usually, loans are taken out to cover the cost of tuition fees—these are fees charged by the university to cover lectures, tutorials, and seminars, as well as other key elements of academic life.

Student loans in England

If you’re studying in England, you can be charged up to £9,250 a year in tuition fees, and this falls to £9000 in Wales. If you’re from Northern Ireland and opt to study there, you’ll pay £4,710 yearly, whereas students from elsewhere will be charged £9250.

Student loans in Scotland

For a Scottish student studying in Scotland, your tuition fees will be covered, however, students from elsewhere in the UK will pay £9,250 if they choose to attend a Scottish university.

Maintenance loans

Loans are not only available for tuition costs, but you can also apply for loans to help cover the cost of living while you study. These are called maintenance loans, and students usually use them to cover accommodation costs as well as general living expenses.

Finally, it’s important to remember that interest will be charged from the day you take your loan out. So, when it’s time to start repaying the money, you’ll be met with a larger sum than the initial figure.

What is the average student loan debt in the UK?

The amount of debt you’ll have by the end of your degree will be dependent on your course, where you studied, and how long you studied. However, on average, an undergraduate student will be left with a debt of around £45,000.

Remember though, there are additional factors to consider such as any overdraft fees, and whether you went on to complete a postgraduate degree. For postgraduates, debt will be around the £24,000 mark. While seeing the accumulated debt may seem daunting, rest assured, there are measures in place to help graduates pay back their debts in a manageable way.

How do I pay back my student loan?

Unlike regular debt, you’ll only start repaying your loans once you’re earning above a certain amount of money. And, student loans are automatically repaid through the tax system, so you won’t have to worry about calculating the costs yourself. They’ll be deducted from your wage automatically.

If you’re self-employed, you’ll simply need to complete a tax return detailing your expenses and profits. From this, your National Insurance, tax, and student loan repayments will be calculated for the year.

Also, it’s important to remember that many graduates will never repay their debts in full. After a certain number of years, (depending on which student loan plan you’re on) the debt will be automatically wiped. For instance, if you started university in England between 2012-2022, your debts will be wiped 30 years from the April after you leave.

When do you start paying back student loans?

You start paying back your student loan once you’re earning over the repayment threshold. These repayments will be deducted from your monthly salary.

But exactly how much will you repay? The amount you’ll pay depends on your yearly salary and the plan you’re on. There are different student loan plans, and the one you’re assigned will depend on when you went to university, and in which country you took out your loans.

Types of student loan plans and repayment thresholds in England:

• Plan 2: If you started university between 1st September 2012 to 31st July 2023, you’ll be on plan 2. The threshold for repayments on this plan is £27,295.

• Plan 5: You started university on or after August 1st 2023. On this plan, you’ll start repayments once you earn £25,000.

• Plan 1: you’ll be on plan 1 if you began studying before September 2012. The repayment threshold is £21,015.

• Finally, for postgraduate repayments, the threshold is £21,000 a year.

Your repayments are calibrated to your earnings, so you’ll never pay more than you can afford. And, unlike regular loans, if your income dips below the threshold for any reason, your repayments will pause.

What student loan interest rates can I expect?

There are different interest rates for different plans. For instance, on plan 1 you’re charged 6.25% interest, and on plan 2 it’s 7.7%.

The GOV.UK website has all the necessary information on the different plans and their specific repayment terms.

So, head over to find out more about the specifics of your plan and repayments. There, you’ll be able to manage your student loan balance, as well as see how much you’ve already repaid, and view important letters and documents regarding your loans.

How can I avoid student loan debt?

If you’re wondering how to avoid student loan debt, you’ll either have to fund your studies independently or seek an alternative route to university.

For instance, in the UK some employers are willing to sponsor employees to study whilst working (by paying all or some of their tuition fees).

Tips for handling your postgraduate finances

Learning how to manage your money is something which all graduates need to master. And, getting into a healthy budgeting and savings routine is key to taking charge of your finances. So, here are some top tips:

• Get to know your finances: First, you’ll need to assess your current financial situation and calculate your income streams as well as your outgoing expenses.

• Create a budget and stick to it: when budgeting, factor in necessities, living expenses, student loan repayments, and disposable income. To get started, head over to our helpful guide on how to build a budget.

• Track your expenses: a simple spreadsheet or a budgeting app can help keep track of your spending. With a visual picture, you’ll be able to easily identify areas where you’re overspending for instance.

• Start a feasible savings routine: once you’ve got a firm grip on your finances, you might want to start thinking about savings (if you haven’t done so already) Consider putting away funds for important life events, rainy days, and unexpected emergencies.

Attending university (among many others) is a great pathway to a successful career, and student loans certainly aren’t something to worry about. You’ll simply want to carefully consider whether taking out a student loan is right for you, and make sure you’re aware of the repayment requirements.

For more insights, dive into our blog where we’ve got top tips for talking about money, as well as advice on how to get out of debt. We’ve also got a helpful guide on 5 questions to ask yourself before taking out a loan.

Representative Example

Based on the last working day of each month

Interest rate 288.35% pa (fixed) Representative 1,267.9% APR

Compare payday loans.
Warning: Late repayments can cause you serious money problems. For help, go to www.moneyhelper.org.uk.

Representative Example: Borrow £400 for 4 months: 3 monthly repayments of £156.09 followed by a final repayment of £156.07. Total repayment £624.34. Interest rate p.a. (fixed) 288.35%. Representative APR 1,267.9%.  Compare Moneyboat loans.

Warning: Late repayments can cause you serious money problems. For help, go to www.moneyhelper.org.uk.

*Our guide to financial promotions: https://www.moneyboat.co.uk/fi...