ConGRADulations, you're in £50k worth of debt

Updated: Aug 22, 2020

WTF is this blog about?

  • If you're lucky enough to have attended university after 1st September 2012 (or you're planning on going in the future) you're likely to have graduated with almost £50k worth of debt under your belt #conGRADulations!

  • Getting your head around how you're going to pay off your student loan can be pretty scary - but this blog should help put your mind at rest.

  • Note that the information contained within this blog is in respect of Plan 2 student loans only (i.e. a student loan that was taken out after September 2012 in England or Wales).

I graduated from uni in 2017 and moved to London shortly after once I'd managed to secure myself a grad job - I was officially #livingmybestlife. Until I received my first student finance statement, which showed that in my first year of working the amount of loan I'd paid off didn't even cover the interest charged (WARNING: you may find the image below disturbing).

Like most people my age, I've been saving my #hardearnedcash for a house deposit. But seeing this statement made me think twice; should I be using these savings to pay off my student debt first!?

How much debt did I rack up at uni?

When I attended university between 2014-2017 (f@*k me, when did I get so old!?); the total amount I borrowed was £42k. This consisted of:

  • Tuition fees: £9k per year

  • Maintenance loan: around £5k per year (which, FYI, was not enough to survive off!)

Due to interest (which is charged at RPI inflation plus 3% whilst you're studying), this had quickly risen to £47k by the time I started paying off my loan in April 2018.

How much will I have to repay?

Calculating how much you'll have to repay is pretty complicated, since it's based on how much you'll earn rather than how much you've borrowed. As it stands, the facts are:

  1. The interest charged on your loan depends on how much you earn, which ranges between RPI inflation and RPI inflation plus 3%.

  2. You don't pay anything until you start earning above £25k per year.

  3. If/when you start earning more than £25,000 per year, you pay 9% on the excess i.e. if you earn £40k per year, you'll pay 9% of £15k (the amount you earn above £25k).

  4. Any remaining student debt is wiped off after 30 years.

Should I pay my student loan off early?

After hours of research, I've concluded that there's no simple answer to this. To answer this question, you'll need to know exactly how much money you're going to earn over the next 30 years, which, unless you're psychic, is pretty hard to guarantee.

You'd also have to take into account any career breaks i.e. if you take time out of work to travel/raise children/have a mid-life crisis, you won't be earning and hence won't be paying your loan off during this time.

Money Saving Expert, Martin Lewis, has created a table that tells you roughly how much you can expect to pay off depending on your starting salary and anticipated salary increases. This is based on very rough assumptions (see below), but is a good starting point for working out how much you could pay back.

  • Tuition fees and maintenance loan of £9,250 and £8,944 per year respectively (£54,582 in total).

  • RPI inflation of 3% per year.

  • Salary increases of inflation plus 2% per year.

(i) Assumes student loan repayment threshold goes up in line with our assumption of average salary increase.

So what?

Calculating how much of your student loan you'll end up paying off and whether you should pay it off early is very complicated, because it's based on your future earnings, changes to inflation, the Government deciding to change the rules etc. But, using the table above as a rough guide, it's clear that unless you're an above average earner (with a starting salary of over £30k, increasing to over £130k in 30-years' time) and in constant employment for the next 30 years, you'll end up paying back less than you originally borrowed - so basically you shouldn't attempt to pay it off early.

It's also important to remember that student debt isn't the same as normal debt - you won't have to pay anything while you're out of work and it won't affect your credit score. This is why Martin Lewis is campaigning for student debt to be referred to as 'graduate contributions'; since it's essentially a 9% tax that we have to pay for the next 30 years for the privilege of having a degree.

If you want to find out more about student loans, I would recommend checking out the Money Saving Expect article here.

If you know any graduates or anyone going off to uni soon, please share this blog with them!

Now for the serious part: my blogs are for educational purposes only; they do not constitute financial advice. Please consult with an independent financial advisor for advice on your specific circumstances. 

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