Why Have Student Loans Increased So Much?Economy Wednesday, October 24th, 2012
Tuition fees increased in 2012 to £9,000 for top universities, rising by almost three times the value of previous fees, and contributing to an overall spike in student loan costs when combined with maintenance loans. Why, then, have student loans increased so much, and how can repayments be made on them? At the same time, what are the alternative options or making repayments, and is it possible to take out loans that can help to pay off student loans at a faster rate before and after graduation? More on these areas can be found below:
Why Have They Increased?
Student loans have primarily increased as the result of funding cuts to universities, and the diversion of tuition fees away from being taxpayer funded towards private payments. Universities that depend on tuition fees have had to raise the amount that they receive to balance out more general cuts to teaching budgets, and particularly where the difference cannot be covered by endowments and investments. Tuition fees, when combined with maintenance loans of up to £5,500 (or £7,675) in London, can account for total debts of £43,000 over three years, and more if a student stays on for a postgraduate course.
As a result, the cost of going to university has significantly increased over the past few years. There are some funding options for students, with non repayable maintenance grants in place for students with households that earn under £25,000 between them. Welsh and Northern Irish students that attend university in their own countries also receive discounted tuition fees, while Scottish students in Scottish universities do not pay fees. Some students that are eligible for non repayable maintenance loans can also receive around £338 a year from bursaries, while students can enter into a National Scholarship Programme.
How Are They Repaid?
In terms of how student loans are repaid, you only start to make repayments once you earn over £21,000 a year. From then, 9 per cent deductions are made, either through PAYE if employed, or as part of an annual HMRC calculation if self employed. Interest is charged on repayments at a rate of 3 per cent over inflation. Unlike other loans, fee penalties are not paid, and there will be no legal action to aggressively reclaim loans. Student loans become void after 30 years, but if paid, do tend to be spread out over a long period of time.
What Are Other Options?
There are a few other options that can be taken if you don’t want to just pay off a student loan over time. A loan can be taken out to make early payments, which can be made if you are going into a highly paid job, and want to get the initial student loan out of the way. 12 month loans can be arranged at a reasonable level of interest to allow you to pay off a student loan, and can be aligned with income to clear off debt. However, it’s not advisable to take this option if you have other credit card and personal loan debts to handle. Moreover, taking out a loan to pay off student debt can be a bad idea if you cannot take on high interest charges for a personal loan. In some cases, an employer will also continue to make deductions automatically until the end of the tax year, even if you have paid off the loan. You will get this money back, but there can be a delay.
Liam Ohm writes about finance. He recommends you get no guarantor loans from anywhere GBP Loans who offer a friendly and professional service.