Navigating Student Loans & Debt: Financial Planning for Graduates

First thing’s first, congratulations on finishing university, all your hard work over the last few years has finally paid off! 

As you navigate the graduate world, climb your way up the career path and make lasting memories, it’s important to also keep an eye on your financial future. 

We get it, managing student loans and debt might sound daunting and the last thing you want to think about after finishing university, but don’t worry. 

In this guide, we’ll be walking you through the ins and outs of understanding and paying back student loans, giving you tips to take control of your finances and set yourself up for success! 

Understanding Student Loans 

Before we get started with our guide on financial planning for graduates, it’s important that you properly understand UK student loans and how they work. 

In the UK, the government provides financial assistance to students to cover tuition fees and living costs. 

These loans are designed to make education accessible to everyone, regardless of their financial background.

The two main types of student loans in the UK are Tuition Fee Loans and Maintenance Loans. 

Tuition Fee Loans cover your degree course fees, whilst Maintenance Loans help with living expenses like rent, food, and transportation. 

Remember, student loans aren’t like your average debt, they’re designed to be affordable, which we’ll get more into later on!  

Paying Back Student Loans 

One of the perks of UK student loans is that you have to start repaying your tuition and maintenance loans until you’re earning over the income threshold. 

If you received any bursaries or grants whilst studying at university, these don’t need to be paid back.

The income threshold for paying back student loans is updated annually and depends on which repayment plan you’re on, either Plan 1, Plan 2, Plan 4 or Plan 5.

Currently the student loan repayment threshold is £25,000 a year, which works out at £2,083 a month or £480 a week.

So, when you land that dream job, you can focus on settling in and earning a good wage before the loan repayments kick in! 

Once you start earning above the threshold, a small percentage of your income will be automatically deducted from your payslip to repay your loans. 

The good news is that the payments are proportional to your earnings, which means that the more you earn, the more you’ll repay. 

The way it works is like a pay-as-you-earn system tailored to your income level, so don’t stress too much about it. 

It’s a small percentage of your overall repayment amount, and it’s not as intimidating as it might seem. 

Plus, any outstanding balance from your student loans will be wiped clean after a set period (usually 25-40 years), so you won’t be stuck with the debt forever.

Again, when your student loan gets written off will depend on the repayment plan that you’re on so make sure to look into this. 

Another important thing to remember is that if you don’t earn enough, you won’t have to start repaying, and if your income drops, so do your repayments. 

Should I Pay Back My Loans Early?

Are you wondering if it’s a good idea to pay off your student loans early? Well, with the income-based repayment system in place, you’re not required to overpay. 

Whilst paying back your student loans early can be cheaper as it will reduce the overall interest you‘ll pay, it may be more financially savvy to focus on building a savings account. 

This way you can begin saving for future goals such as buying a house, saving for a car, or going travelling.

Making Extra Student Loan Payments

Alongside payments through your employer, you can get a head start and make extra repayments, if you’re in a financial position to do so. 

Should you wish to start paying your loans back, you can set up a separate savings account and aim to put aside a small portion of your income each month. 

You’ll need to contact the Student Loans Company prior, and then you’ll be able to make extra repayments through bank transfer, Direct Debit or by cheque. 

Even if it’s just a small amount, every bit extra you pay now towards your student loan repayment can make a significant difference in the long run. After all, those pennies will add up over time!

Things To Remember About Navigating Student Loans 

Our first important piece of information to remember about navigating student loans as a graduate is to keep your contact details up to date with the Student Loans Company. 

They’ll use your listed contact information to communicate with you about your loan and repayments, so missing out on crucial updates could lead to confusion down the road.

It’s also good to note that unpaid student loans won’t appear on your credit file and your credit score won’t be affected. 

Although if you do apply for a mortgage, lenders may take into consideration if you have a student loan when deciding how much you can borrow.

If you have questions about repaying your student loan, you can contact the Student Loan Repayment team.

If the world of repaying back your university finances feels a bit overwhelming, you can also seek advice from financial advisors. 

They are specialists in helping graduates manage their student loans and debt, who can provide personalised guidance based on your circumstances. 

To conclude, your university education is an investment in yourself, so try not to stress yourself out about navigating student loan debts, it acts more as a graduate income tax. 

Remember, there are plenty of graduates who will be in the same boat as you regarding student loan repayments, so whilst it may seem daunting, you’ll navigate the waters just fine. 

Hopefully your post-graduation life will go a whole lot smoother after reading our financial planning guide. All of us at Homes for Students wish you the best for the future! 

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