STUDENT DEBT EXPLAINED

When a student, debts can seemingly pile up unnoticed, with education costing more than it ever has. The term ‘student debt’ covers all debt accrued whilst in further or higher education, including college and university. Tuition fees and maintenance loans are covered under this umbrella, but so are other forms of credit including overdrafts, store cards and credit card debts.
In 2015, the average student graduated from university with £44,000 of debt (according to the Higher Education Commission). A study found that most students will be repaying debt into their 50’s, with many never managing to repay what they owe.
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Loans with Income Contingent Repayment

The Student Loans Company funds most tuition fee and maintenance loans. These are linked to the inflation index and will only need to be repaid once the graduate is earning over a certain salary. This is Income Contingent Repayment (ICR), with repayments rising and falling with your income so that you’re never out of your depth.

Other types of student debt

Whilst the loans provided by the Student Loans Company come with ICRs, other types of debt that you might accumulate may not be so flexible.

You might find it easier than you expect to get into debt, by getting a credit card or using a substantial overdraft allowance. Student bank accounts come with interest free overdrafts, but these can be recalled at any time. Student accounts eventually become standard current accounts, with associated interest, though between these there is usually a graduate account. The graduate account will also include an interest free overdraft, but at this stage you should be paying it off before your account is turned into a standard one.

Ways to reduce or avoid student debt

  • Create a budget
  • Consider withdrawing your weekly cash, so that you don’t spend too much
  • Take advantage of student discounts and deals, but only for things that you’re already planning to buy. Don’t be drawn in by offers for things you don’t need
  • Use vouchers, discount codes and cashback sites
  • Buy in bulk to save money. Consider planning meals with your friends to take advantage of bulk savings
  • Work part-time whilst studying.

Consider that it may be wiser to take out ICR maintenance loans than to use store cards, credit cards and other loans. Try to use interest free credit before loans and cards with interest attached, but think ahead to when and how the debt will be repaid.

Remember that most debts can be recalled at any time, so you should only take out debt that you can find a way to repay in an emergency. You might also want to think about asking family members for help, before turning to traditional borrowing, as your relatives might offer more flexible repayment terms than you’d be offered by your bank.

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“Disclaimer: No information on this website shall be construed as advice and content is offered for information purposes only. You should always seek advice from an appropriately qualified solicitor on any specific legal enquiry, an appropriately qualified Independent Financial Advisor on any specific financial matter, or an appropriately regulated and qualified debt management company. Full terms of use

Debt Free Direct is a trading name of Clear Start Partnerships Limited and is authorised and regulated to issue debt advice by the Financial Conduct Authority.

Simpson Millar LLP Solicitors is a limited liability partnership and is authorised and regulated by the Solicitors Regulation Authority.

© Copyright Simpson Millar Financial Services Ltd (Company No: 08121664). Registered office: 21-27 St Paul's Street, Leeds LS1 2JG. Authorised and Regulated by the Financial Conduct Authority. FCA registration no: 589130.
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