Student & Graduate Loans
Student and graduate loans are designed to help pay for people to get through University now that the grant system has disappeared. These days it’s estimated that a third of all eighteen year olds enter further education. When the full maintenance grant system was in place only a tenth did so. Clearly this has created a huge demand for loans.
When student and graduate loans were introduced the bitter pill was sweetened with the fact that these loans would be at reduced levels of interest. This appeared to be because nobody actually thought it was a great idea for young people to start out in life with a massive debt hanging over their heads.
The moment of pain
The big difference between student loans and other types of loan is that the repayments are delayed until after you have completed your studies. The assumption is that at that time you will be earning and so can repay your huge debt.
A lower rate
It would seem that most lenders regard 0.75% less than a standard personal loan as a suitably reduced interest fee. There are of course many variations on this, so as usual it’s worth shopping around, but even on ten thousand pounds 0.75% doesn’t seem a huge reduction for young people.
There is often a maximum loan amount that can be taken out. In London this is approximately £5,000 a year. The Student Loans Company, (www.studentloans.gov.uk) provides an interesting resource for information regarding how to apply and how to conduct your loan.
A comparison
At the moment, there are a number of companies that appear to offer the best deals on interest rates for students. These are:
* MoneyBack Bank at 5.6%,
* the AA and Northern Rock at 5.8%,
* Sainsbury’s at 6.1%
* and Barclays at 6.3%.
The loans can be either secured or unsecured. If it’s a secured loan then it’s likely that it would be taken out by a parent and the family home used as security. If it’s unsecured you may find that you will be paying a slightly higher interest rate.
Regular statements
Each September, at the start of the new academic year, you will receive a statement showing the interest rate, how much you have paid off (if you have chosen to pay off any while studying) and your balance. It’s important that you always keep your lender up to date with your current address. Students are notorious for moving “digs” and it’s the sort of thing that will easily slip your mind.
These regular statements will continue until you have completely repaid your loan.
Automatic withdrawal
The repayments are automatically taken from your bank account once you start work and if you earn over £15,000 then 9% of anything you earn above that figure will go towards paying off your loan. It’s worth noting that although the rates are slightly lower than standard loans they don’t offer you the same kind of flexibility and freedom of choice on your repayment options as standards loans.
Overdrafts
Many of the student banking packages that are on offer from the high street banks provide an overdraft which is often interest free while they are studying. To students this can seem like you are being given free money, but once you’re studying is over you can get stung for the bank changes its rate to one that will compensate for the years of low rates and so it can be very high. Getting in a habit of using all your available credit is not a good idea. It is far better to discipline yourself to stay within set parameters and always be aware of the state of your finances. It is so easy to lose track of where your money goes – that is something that applies to people of all ages!
