Adverse Credit Loans

We all know the myths surrounding the stereotypical student – poor, struggling to survive financially, and juggling their studies with poorly paid jobs in order to cover living expenses, so for many people in higher education student loans are a Godsend.

Student Loans:

Student Loans are part of the Governments financial support package for students in higher education (university or college). Student loans are designed to help you with your living costs (accommodation, food, clothes, travel etc) while you are at university or college. If you require additional financial assistance, for example help with tuition fees etc, the Government also offers other products such as Grants, to help cover this cost.

Most people tend to take out a student loan from the Student Loan Company based in Glasgow, Scotland. Although many banks and building societies offer special loan rates for students in higher education, this is not the same as a student loan from the Student Loan Company (SLC).

The SLC works in close partnership with UK universities and colleges and administers a range of products including loans, grants and allowances on behalf of the English, Northern Irish, Scottish and Welsh education authorities and handles the payments and account maintenance. With student loans they also administer the collection of repayments.

Your local authority handles the first stage of your application for financial support so if you wish to apply for a student loan you need to speak to your local education authority – you do not apply directly to the SLC. If you are successful in your application the loan is usually paid in three instalments. However if you apply late you may receive two instalments or even just one depending on when in the year you apply.

The unique factor which sets the SLC apart from banks and building societies is the nature of the repayments. With an SLC student loan you are liable to start repaying you loan from the April after you graduate or otherwise leave your course. So if you graduate in July you will not have to start repayments until the following April. Likewise if you leave your course for whatever reason in May, you will not have to start repaying you loan until 11 months time (the following April). But, unlike any other loan, you only have to start repayments when your gross income (income before tax deductions) exceeds £1,250 per month (or £288 per week or £15,000 per annum). This amount is known as the threshold. If your earnings are below this threshold you can defer your repayments for a year at a time. After the year is up you will need to complete a form giving details (and providing evidence) of your income which will be assessed by the SLC and if you are still earning less then the threshold you can defer your repayments for another year, and so on.

If you are earning over the threshold amount then you will be obliged by law to repay your loan in accordance with the regulations of the SLC. The majority of borrowers will have repayments collected by the HM Revenue & Customs (previously known as the Inland Revenue) via their employer. This means repayments will be taken directly from your salary through the PAYE (Pay As You Earn) system. However if you are outside the UK tax system, for example if you are working abroad for a non UK company, then you will repay directly to the SLC.

The amount you repay is not fixed when you take out the loan. Instead it is based on your income after graduation and so the level of repayments will rise or fall directly in line with your income. Repayments are calculated as a percentage of the income above the £1,250 per month (£15,000 P/A) threshold – usually 9%.

For example, say after graduation you earn £17,000 P/A:

£17,000 (total income to be assessed)
-
£15,00 (threshold)
=
£2,000 (net income on which
be assessed repayments are based)

So 9% of £2,000 is £180 and hence you will be liable to repay £180 that year. This is usually split into monthly instalments so based on your income of £17,000 P/A you will be repaying £15 per month. Obviously if you earn over £17,000 your monthly instalments will be higher. Hence your repayment amounts and the length of time over which you will repay your loan will depend on your income after graduation and on the total amount you have borrowed.

You can help to pay off your loan more quickly by making voluntary repayments even if you do not earn above the threshold, or even before your repayment start date. These voluntary repayments are made directly to the SLC by cheque, debit card, bank giro credit or standing order. When you do start making repayments based on your income, the monthly amount payable will not be reduced but any effect you make to lower the total amount (such as voluntary repayments) will mean you will be able to pay off your loan quicker.

Once you reach the age of 65 your loan will be cancelled even if you have not paid it off. This means if your income never rises above the threshold before you reach the age of 65 you will not have to make any repayments – unlike any other loan. This is why you sometimes hear of people who have graduated 10 or 15 years earlier but are still paying off their student loan. Your loan will also be cancelled if you die – it will not be passed to anyone else. It will also be cancelled if you become permanently disabled.