Student Debts

In 2020-2021, there were 2.66 million students studying higher education in the UK. The majority of these will have taken out a student loan of some description, be it a maintenance loan, student loan or an overdraft loan. The Government has loaned approximately £20 billion a year to students, leaving the average student with £45,800 of debt. This can be a daunting amount for anyone and if you are worried about the repayments of your student loan or overdraft, we can help.

Depending on your type of student loan and what year you took out the loan, the repayment terms will differ. However, all student loan repayments begin after you are earning a set amount. This aims to make repayments more manageable, and the Student Finance company will not ask you to begin your repayments if you are not within that threshold.

The thresholds change in April every year, so check your plan to know exactly when your repayments start. It is also important to know what Plan you are on. Depending on if you are on Plan 1, 2 or 4, or a Postgraduate plan, your threshold and repayment terms will differ. Check all repayment terms and plans on the Government website.

Once you reach this threshold, you will pay 9% of what you earn over the threshold if you are on Plan 1, 2 or 4 and 6% if you are repaying a Postgraduate loan. Again, you can get further information regarding your student loan repayments and the interest rates of each plan on the Government website.

Thanks to the threshold approach to student loan repayments, if you are out of work or struggling to build up income, you will not be expected to make your repayments. When you are within the threshold of your plan, lower repayment terms are not an option and you must pay the 9% or 6%.

Once you do begin earning more income, the payments will automatically be taken from your wage. This means it will be deducted from your wage before it reaches your bank account. If, after this amount is taken, you are struggling to pay other monthly or weekly outgoings, check out our budgeting guide to help you manage your remaining amount or get free debt advice for help repaying other loans.

If you are still a student, it is likely that you will be living off a small wage or solely reliant on your loan. Especially with the recent cost of living crisis, students have been struggling to pay for essentials such as food, rent or utility bills.

Student overdraft options, credit cards or Buy Now Pay Later are all becoming increasingly popular to help handle the cost, but with little to no regular income students can easily fall into problem debt.

A student debit or credit card often comes with an interest-free overdraft option, the amount of which varies depending on your provider. It may feel like free money at the time, but it is important to ensure you don’t rely too heavily on your overdraft.

Your next payment will be used to repay any outstanding overdraft amounts, leaving you with a lesser income to begin with. It is also important to ensure any overdraft amounts are paid off before you leave university. After you leave, you may have to begin paying interest on your overdraft.

In the same vein as an overdraft, having a credit card or store card at university may seem like a great solution but you must ensure you have the means to pay off any outstanding amounts on the card come the end of the month.

If you cannot pay off your credit card bill, you may be left facing larger debts due to any interest rates added or late payment fees.

We have spoken aplenty on the dangers of Buy Now Pay Later schemes, such as Klarna or Clearpay. As these options rise in popularity, especially with the younger generations, people are sometimes unaware of the serious debt they can result in.

BNPL is available so widely, from clothing to food shops and can be attractive when advertised as 0% interest. We encourage you to pay attention to the small print, as a late or missed payment can result in extra interest added, late payment fees or worse. If you cannot afford your latest Klarna payment, read our blog post on what you can do here.