Student loan management basics

Are you worried about repaying your student loan?

If you have taken up a student loan from the Student Loan Company (SLC) you do not need to pay it off as early as possible like other loans. Student loan acts more like a grant rather than a normal loan. It is the cheapest form of loan that you’ll ever get. You may even get a refund if you have a low income during the next tax year.

Got a student loan! From September 2009 onwards 0% interest rate will be applicable on your loan.

If you have taken up the loan before 1998 then the current interest rate will be around 3.8% but it will be reduced to -0.4% from September 2009. This will actually reduce your loan.

If you have taken up the loan after 1998 (current rate of interest is 1.5%) the interest rte will decrease to 0% from September 2009. Thus you will only require paying off the principal amount if you are at all willing to pay.

How does student loan affect my credit rating?

Individuals who got student loan after 1998 and have income contingent loans will have no affect on their credit score even if they are not repaying the loan on time. The income contingent loan is a kind of graduate tax. At present if you are earning more than £15,000 your repayment will be 9% a year.

However, people who got the loan before 1998 and have a mortgage style loan may have a little affect on their credit rating. The SLC has announced that they will give a 28 days notice [32 kb; PDF file] to all the defaulters to contact them immediately and inform why they are not paying. Otherwise SLC will directly report it to the credit rating agencies. However there is no need to worry. If you are earning less than £25,936 a year you can keep on deferring your loan repayments. If you have a reason for not paying your loan SLC will not inform your case to the credit record agencies. They will also defer your payments.

What if I never pay my student loans?

You may not repay the loan at all if you fulfil certain conditions.

For borrowers before 1998 may not need to repay if:

1. You are over 50 years of age as of today
2. You are unfit for work
3. It is more than 25 years since your repayments were about to start.
4. Death

For borrowers after 1998 may not need to repay if:

1. You are over 65 years of age
2. You are unfit for work
3. Death

Can I include student loan in a trust deed?

A trust deed does not cover student loans. Trust deeds generally cover debts like unsecured loans, rent arrears and credit card loans. You are supposed to pay off your student loan when you have reached the income threshold.

Tell me one thing; do you really need to worry about student loan repayments if you are not in a favourable financial situation!

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