Student Loan Repayments Are Manageable
Right at the top of this guide, we said that the Student Loan is one of the better borrowing deals out there and we stick by this.
If the loan had come from a commercial or private lender, you could be landed with big fat arrangement fees, hefty penalties for missing repayments, as well as sky-high interest rates.
Banks and commercial lenders would also expect to get paid no matter how little you earn, whereas Student Loan repayments are based entirely on what you can actually afford.
All this adds up to make the repayments so manageable that most graduates don’t even miss the cash that comes out of their monthly pay to cover it.
Things To Do Before Repaying Your Student Loan
Here’s everything you should do before you start repaying your Student Loan:
If youre not sure which option is best for you, or youre struggling to get your head around the sums, ask for help. Try your universitys student money adviser or look for an independent financial adviser.
These are the facts, but what about the fiction? Allow us to debunk the Student Loan myths;that so many people still believe!
Dont Bank On Student Loan Forgiveness
Okay, this one really grinds my little gears. I know people probably told you that taking out student loans was no big deal because you could just get them forgiven later.
But;student loan forgiveness;isnt really the dream come true it sounds like. First off, with the current program, there are so many requirements you have to meet in order to be eligible . And even then, forgiveness isnt guaranteed.
Now, theres been a lot more talk lately about the;government wiping out student loan debt;across the board. Okay, that would be awesome, but dont bank on it. I mean, Biden talked a lot about that sweet student loan forgiveness. So far, hes canceled nearly $3 billion of current student loans.3;That may sound like a lot until you hear the current federal student loan debt sits at $1.57 trillion .4;So after all that talk, only 0.19% of the debt was forgiven. Listen: Politicians make a lot of empty promises. It doesnt matter whos in the White House. Youre responsible for taking care of your money and your debts.
Youre better off having a job that pays well so you can go ahead and pay off your student loans as fast as you can. That way you wont spend years of your life waiting to have your loans forgivenit may never happen.
P.S. If youre into podcasts, you need to check out a podcast series I hosted called Borrowed Futureits all about the student loan debt crisis in America. Specifically, listen to Episode 6: Dont Bank on Student Loan Forgiveness. Its real good.
Recommended Reading: How Do I Get My Student Loan Number
Average Time To Repay Student Loans
Report Highlights. The average student borrower takes 20 years to pay off their student loan debt.
- Some professional graduates take over 45 years to repay student loans.
- 21% of borrowers see their total student loan debt balance increase in the first 5 years of their loan.
- The average medical school graduates salary is not sufficient to make their student loan payments.
Understand Your Repayment Options
After you know who and how much you owe, and have a sense of your personal budget, it’s time to learn about your repayment options. Your repayment plan determines how much you pay each month, including what you may pay in interest, over the life of your loan.
This means that choosing a repayment plan is usually about paying as much as you can afford each month , but not more than you can afford (to avoid missing payments.
Recommended Reading: Is Student Loan Refinancing Worth It
Background On Student Loan Default
A federal student loan enters default when a borrower fails to make a payment on it for 270 consecutive days.9 When this happens, the borrowers loan is transferred from the student loan servicera private contractor responsible for collecting payments on behalf of the federal governmentto the Debt Management Collections System.10 Borrowers then have 60 days to come to a repayment arrangement with the Education Department. If no agreement is reached, the loan is transferred to a student loan debt collector.
Borrowers can face several consequences for entering default. First, defaults are recorded on borrowers credit reports, lowering their credit scores and potentially making it harder for them to obtain future loans, apartments, or even jobs.11 Second, defaulters can have their wages garnished or tax refunds seized, and older defaulters may lose a portion of their Social Security payments.12 Default also prevents borrowers from receiving any additional federal student aid until their loans return to good standing, making it more challenging for dropouts to return to school. Lastly, defaulters are legally required to pay for the costs of debt collectionwhich can be as high as 25 percent of their defaulted loan balanceto get rid of their debt.
How And When Do I Repay
- Full-time courses youll be due to start repaying the April after you finish or leave your course, but only if you’re earning;over the repayment threshold. For example, if you graduate in June 2021, youll be due to start repaying in April 2022, if you’re earning enough.
- Part-time courses; youll be due to start repaying the April four years after the start of your course, or the April after you finish or leave your course, whichever comes first, but only if you’re earning over the repayment threshold.
How you’ll repay depends on what you choose to do after your course:
- If you start work, your employer will automatically take 9% of your income above the threshold from your salary, along with tax and National Insurance.
- If you’re self-employed, youll make repayments at the same time as you pay tax through self-assessment.
- If you move overseas, youll repay directly to the Student Loans Company, instead of having it taken automatically from your pay. The repayment threshold could be different from the UK, which means the amount you repay could be different. Find out more about repaying from overseas.
When Do Student Loan Payments Start
Good news for student loan borrowers. You wont have to start repaying student loans until the moratorium expires, which is at least September 30, 2021.
For graduating students, there is also something called a grace period that can be anywhere from six months to nine months. This provides a period of adjustment after you graduate, drop out, or slip below half-time status. The grace period is designed to provide a chance to find a job, select a repayment plan, and begin earning an income before youre swamped with bills.
Are you unemployed? You may be eligible for an unemployment deferment. For federal loans, if you qualify, you could suspend monthly payments for as many as 36 months. However, borrowers must reapply every six months, demonstrating proof of unemployment benefits and an active job search.
For private loans, any variety of deferment is at the discretion of the lender.
The following types of loans have six-month grace periods:
- Direct Subsidized/Unsubsidized Loans
- Some private student loans
PLUS loans have no grace period, and you must begin repaying them as soon as they are fully disbursed. However, those who receive PLUS loans as a graduate or a professional student get an automatic six-month deferment after graduation, leave school, or dip below half-time enrollment.
Similarly, parents who secure PLUS loans for their childs education may request a six-month deferment under the circumstances mentioned above.
Extending Federal Student Loan Payments
Ensure to stay plugged into government movement around student loan payments, both on the federal and state levels.;;
I understand if youre someone that tries to steer clear of news about politics.; It can be stressful. However, its essential, especially when it comes to your money. The Student Borrower Protection Center is a great place to determine whats going on for future student loans.;;
Whispers in the federal government have many of us hoping that the student loan payment freeze extends past September, but as of right now, theres been no new announcements.;;
Even if they extend the freeze, it might be too close to the September 30th deadline to know for sure.; There were whispers once before.;
For example, once upon a time, there were whispers about canceling student loan debt under $50,000.; Do you remember that?;;
But here we are with no cancellation insight.;
While loan cancellation hasnt happened yet, we shouldnt stop advocating for it.; In recent months there have been significant strides in our government as a whole about the future of student loans and their repayments.;;
Bahar Akman, Executive Director of Inversants sister organization, the Hildreth Institute, is part of a 125 organization coalition advocating for delivery on promised debt relief.
Please read the press release from the Student Borrower Protection Center outlining their petition to President Biden to learn more.;;
Defaulters Are Not Immediate Dropouts
Driven by research from the Association of Community College Trustees and the Obama administrations Council of Economic Advisers, conventional wisdom in higher education policy now recognizes that dropouts are at greater risk of default than college graduates; new data confirm that finding.27 Of students who entered higher education in the 2003-04 academic year and borrowed federal loans, 49 percent of those who defaulted dropped out of college, while just 10 percent finished a bachelors degree. Only 5 percent of defaulters borrowed for graduate education.28
New data also shed light on how far borrowers made it into their programs. Table 3 shows the median number of postsecondary credits earned by students who defaulted across a variety of characteristics. Surprisingly, the median dropout earned 24 credits, the equivalent of two semesters at what is considered a full-time load. This is notably higher than previous default analyses. A 2015 ACCT study, for example, found that nearly 60 percent of defaulters from Iowa community colleges accumulated less than 15 credit hours.29
There may be a technical reason for this discrepancy. Methodology documentation produced by the National Center for Education Statistics notes that 8.5 percent of the student sample did not include transcript data.30 If many of these students borrowed and dropped out without accumulating any credits, then the median figure for credits earned would decrease.
Q Is College Worth The Money Even If One Has To Borrow For It Or Is Borrowing For College A Mistake
A. It depends. On average, an associate degree or a bachelors degree pays off handsomely in the job market; borrowing to earn a degree can make economic sense. Over the course of a career, the typical worker with a bachelors degree earns nearly $1 million more than an otherwise similar worker with just a high school diploma if both work fulltime, year-round from age 25. A similar worker with an associate degree earns $360,000 more than a high school grad. And individuals with college degrees experience lower unemployment rates and increased odds of moving up the economic ladder. The payoff is not so great for students who borrow and dont get a degree or those who pay a lot for a certificate or degree that employers dont value, a problem that has been particularly acute among for-profit schools. Indeed, the variation in outcomes across colleges and across individual academic programs within a college can be enormousso students should choose carefully.
Plan 4 Student Loans Explained
In April 2021, a new type of Student Loan repayment plan was introduced: Plan 4.
This plan is exclusive to Scotland, and any Scottish students who started a degree in the UK on or after 1st September 1998 have now been moved to Plan 4.
Anyone with a Plan 4 loan would previously have been repaying under Plan 1, and the only difference is that the threshold for repayment is significantly higher great news for Scottish students and graduates.
What Does Your Student Loan Statement Mean
Every so often the Student Loans Company send out a Student Loan statement to every student/graduate, and we receive loads of worried emails and messages.
There’s a lot of scary numbers involved on the statement, as well as a lot of confusion about what it all means. Here’s our breakdown to put you at ease:
We’ve numbered the statement above to help explain what each part means.
As this statement runs from April 2012 to April 2016, we can assume that this student started a three-year course in 2012 and graduated in 2015. In the year or so after graduating, you’ll likely receive a Student Loan repayment statement very similar to this one.
When Are Plan 2 Student Loans Written Off
Plan 2 loans are written off;30 years after you first become eligible to repay , or if you receive a disability-related benefit and can no longer work .
If the loan is ‘written off’, that means you no longer have to make payments towards it even if you haven’t paid it all back!
Find out how much of your loan youre in line to repay with our Student Loan repayment calculator.
Repaying Bc Student Loans
If you received a B.C student loan after August 2000 you have direct lend B.C. student loan. Risk-sharing and guaranteed loans are no longer issued, but they must still be repaid if you have them.
Resolve Student Loan Disputes
If you and your loan servicer disagree about the balance or status of your loan, follow these steps to resolve your disputes:
1. Talk with your loan servicer
You may be able to solve a dispute by simply contacting your loan servicer and discussing the issue. Get tips on working through an issue with your loan servicer to resolve the dispute.
2. Request help from the FSA Ombudsman Group
If you have followed the guide and still cannot resolve your issue, as a last resort, contact the Federal Student Aid Ombudsman Group. The FSA Ombudsman works with student loan borrowers to informally resolve loan disputes and problems. Use FSA’s checklist to gather information youll need to discuss the dispute with them.
What Is The Interest Rate On Plan 4 Student Loans
As we explained above, Scottish students used to repay their Student Loans under Plan 1. As part of the move to Plan 4, most of the key components were retained including the way interest is calculated.
This means that, like Plan 1, the rate at which Plan 4 Student Loans accrue interest is usually set in September of each year, and is determined by whichever is lowest between:
- The RPI rate from March of the same year
- The Bank of England base rate plus 1%.
You can to jump back to Plan 1 for a more detailed explanation of how the interest works, but the key point to bear in mind is that the Bank of England base rate plus 1% is currently lower than the RPI rate from March 2021 .
Therefore, the interest rate on Plan 4 Student Loans is 1.1%; and that applies whether you’re still studying or have graduated.
If You Have 2 Or More Jobs
If youre employed, your repayments will be taken out of your salary. The repayments will be from the jobs where you earn over the minimum amount, not your combined income.
You have a Plan 1 loan.
You have 2 jobs, both paying you a regular monthly wage. Before tax and other deductions, you earn £1,000 a month from one job and £800 a month for the other.
You will not have to make repayments because neither salary is above the £1,657 a month threshold.
You have a Plan 2 loan.
You have 2 jobs, both paying you a regular monthly wage. Before tax and other deductions, you earn £2,300 a month from one job and £500 a month for the other.
You will only make repayments on the income from the job that pays you £2,300 a month because its above the £2,274 threshold.
What Is Loan Consolidation
Consolidation means your lender has given you a “repayment date.” It starts on the first day of the seventh month after you stopped attending full-time studies or withdrew from classes.
The National Student Loans Service Centre will automatically send you a consolidation agreement, approximately 45 days before you enter repayment.
Your consolidation agreement shows:
- The details of your current outstanding Canada-B.C. integrated student loans balance.
- Your monthly payment and when it is due. Please note that your payments will be prorated to your Canada and BC student loan debt, based on each loans portfolio outstanding balance.
- How long you have to repay.
- The interest rate charged on your loan.
- The bank account from which payments will be withdrawn.
Your credit rating stays in good standing with Canada-British Columbia integrated student loans and/or other BC and Canada student loans when you meet the terms of the consolidation agreement and repayment schedule by making your monthly payments on time.
The consolidation agreement lets you:
- Review your loan information.
- Review your bank account information.
- Establish your loan repayment options including:
- Setting up the pre-authorized payment plan
- Choose the fixed-rate interest option
- Review repayment assistance plans