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Student loans - do you know how much they’re costing you?

A student loan can be a godsend. For many it’s the only way to afford further or higher education. Though they work differently to other loans, they’re still a debt that most will end up paying. With a maximum of £50,000 available, it’s a huge amount of debt to have at the back of your mind.

Yet recent research from the Debt Advisory Centre has shown 58% of people with a student loan have no idea how much interest they’re being charged.

If that includes you, the good news is student loans have a low interest rate – currently you are looking at 1.5% or 2.5%. Far less than commercial loans.

How much that will cost you in the end depends on how much you borrowed, when you graduated and how much you earn.

You don’t start paying the money back until your salary hits a certain threshold, which is different depending on when you studied. Even then you only pay back 9% of taxable earnings over that amount. The Debt Advisory Centre survey found the average monthly repayment at the moment to be £75.50.

If you’re a high earner, you’ll pay back more every month. In turn you’ll repay the whole debt more quickly and there’s less time for the loan to earn interest. If you’re not earning enough to pay much back, the overall total of the interest charged will get a lot higher.

So what should you do with your debt?

Is paying your student loan back more quickly worth it?

The Debt Advisory Centre research found 11% try to pay off more than the minimum payment.

If you want to pay back your student loan more quickly, first take a look at your other debts and commitments. Look at paying off higher interest debts first, such as credit cards, mortgages or loans.

For example, if you owe £1000 on a credit card which has a 15% APR, after a year you will owe £1150. If you owed £1000 from your student loan, over a year you’d be looking at paying back £1015. By paying off the credit card first, you’d be saving yourself £135.

You could also take a look at savings and investments, to see whether you would get more bang for your buck if you put your money in a high-interest savings account.

Remember, if you do pay back money on your student loan, you can’t then get the money back.


No other debts? How to clear your student loan

You have the right to pay off your student loan more quickly by making single payments of £5 or more directly to the Student Loans Company, at any time.

You also have the right to pay off your outstanding student loan in full at any time.

To do so, you have a number of options, including standing order, and cheque. You should be aware that credit card payments come with a 1.5% surcharge.

You will need your Student Reference Number to hand.

It is very important you keep track of your repayments. You can do this by regularly checking your account online at the repayment website.


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  • Elizabeth Spear / 7 August 2015

    I have just read an article that student loans start accruing interest immediately - from when loan starts and not post graduate- at 3% above the rate of inflation. This has not been made clear on anything else I have read. Is this accurate?