Student loans can be a confusing issue to get your head around. But familiarising yourself with how the system works is hugely beneficial to your understanding of student finances. So, here’s why you should be tracking your loan as a student.
The problem with student loans
Thanks to high tuition fees and expensive living costs, most students couldn’t have gone to university without a loan. But now, with student loan interest rates increasing and high debts incurred after graduation, students are starting to wonder if it’s even worth it if they can’t pay it all back.
This is why it’s important to be tracing your loans as a student so you can gain an understanding of your finances and what’s expected of you once you graduate.
Tracing loans helps you to prepare for hidden financial expectations
Many people believe that a student loan leaves you with a huge amount of debt that you have to pay off as soon as you graduate. However, the current rules state that the amount you have to repay is based on your income.
Despite variable interest rates, you only have to pay 9% of everything earned above £25,725 a year. So panic over, but what people don’t realise about the student loan being income based is that it comes with the hidden expectation that parents should contribute financially to students’ living costs.
Depending on how much your parents earn, you may get less of a student loan than you might have expected. As a student, tracing loans that you’re expecting to get each year will help you to monitor your finances. This will prepare you for the possibility that you might have to start budgeting, work, or ask your parents to contribute financially.
Tracing loans as a student teaches you money management skills
You should always know the terms and conditions of borrowing money and your student loan is no exception. Being aware of your finances, what you’ve borrowed, and what you owe protects you from any nasty surprises in the future.
Your student loan is really more of a “graduate contribution”. You don’t have to pay anything back until you reach a certain income threshold but the rules aren’t set in stone. If you take the opportunity to treat your student loan as a way to learn about keeping on top of your finances then you will be prepared for any eventuality.
Tracing loans as a student is good practice for future money management endeavours. So, familiarise yourself with yours. Keep a note of how much it is and pay attention to fluctuating interest rates. Your student loan is a freebie way to get to grips with borrowing money. If you make tracing loans a habit as a student, you will feel more confident when you’re applying for a loan or mortgage later on.
When you should pay back your student loan
Repaying your student loan is automatic. Student Finance keeps track of your income through HMRC’s tax codes. As soon as you start earning £25,725, Student Finance will automatically start taxing you once a month. Just like regular tax, the repayments come out of your earnings before the money arrives into your account so you won’t even notice it happening until you get your statements.
Even though you don’t really have to do anything, you should still be tracing loans from Student Finance so you can monitor where your money is going. It’s unlikely that Student Finance will be charging you the wrong amount but it’s important to be tracing loans just in case anything changes. The last thing you want is to be caught out by an unexpected figure on your bank statement.