So, what will our student loans mean in the future?

Holly Smith·5 April 2017·4 min read
So, what will our student loans mean in the future?

Student loans: the double-edged sword. On the one hand, this extra money will help pay for all those takeaways and jäger bombs. On the flipside, we of course will one day have to repay this gigantic sum. It seems that students, myself included, are ignorant to the exact procedure of paying back student loans.

We live for the present, after all.

Firstly, it is only Tuition Fee loans and Maintenance loans that need to be paid back, and not grants and bursaries. Currently, you have to start repaying when you earn over £21,000. Your repayments are taken out of your salary just as is the case with tax and National Insurance. To work out how much has been deducted, your payslips will clarify. If you graduated post 2012, you pay back 9% of your income over the threshold of £21,000 per annum. For example, if you were to earn £25,000, you would pay back £30 per month. If you were lucky enough to earn £50,000, you’d unfortunately have to pay back £217 per month.

To work out your monthly repayment amount

  • Take away £21,000 from your annual salary before tax
  • Work out 9% of the remainder
  • Divide that figure by 12
  • Round down to the nearest pound

However, there is a catch. Students seem to be unaware that there are interest rates added to the total amount you owe every month. The interest rate is based on the UK Retail Price Index (RPI) and it is updated once a year in September. Until 2012 there was no ‘real’ cost to student loans, as the interest rate was fixed to the rate of inflation (RPI). However, those graduating post 2012 have to pay RPI inflation plus 3% on the outstanding balance. This interest rate will depend upon your income. For instance, at £21,000 it is currently only 1.6% plus 3%. Where income is over £41,000 a year, however, it is 4.6% plus 3%. If you go abroad for over 3 months, it is more complex and you have to fill in an overseas assessment form.

Our generation seems extremely hard done by when it comes to student fees. This mounting debt is just another pressure added onto an already difficult and challenging experience. With rising house prices and costs of living, the future can seem bleak come graduation day. What’s more ridiculous is the fact that some 70 per cent of students who left university last year are expected never to finish repaying their student loans, according the Institute for Fiscal Studies. For these 70 per cent, they will make repayments for 30 years before having the unpaid loan written off. Earlier generations of students were confident that they could repay their debts. For us, however, the dream of being able to gain a mortgage is distant. As evident, the ownership of housing amongst young adults has declined rapidly over the past decade. Staying afloat in a context of failing real wages and rising house prices is proving impossible for many recent graduates. For example, in 2014-15, 37 per cent of 25-34 year olds owned their home, in comparison with 57 per cent 10 years earlier.

What’s shocking is that now students not only paying for their education, they’re financing it with inflation above interest. Given that 2017/2018 starters will pay an increased fee of £9,250, there seems no end to the every increasing financial burden for students wishing merely to excel in their education.