One of the things that can put a lot of people off going to university is the idea of paying back their student loans. People worry about how much debt they’re going to be getting into and what happens if they can’t pay it back. To reduce your concern, here’s what happens if you don’t pay student loans.
What happens if you don’t pay off all of your loans?
It is actually unlikely that you will ever pay off all of your student loans. There are seriously high-interest rates and wages tend not to exceed the repayment threshold until a few years after you graduate. In fact, 83% of university leavers will not earn enough to clear their debt.
The money is taken off of your salary before you even receive it once you do exceed the repayment threshold, but in comparison to the salary you’ll be receiving it is a relatively small amount – hence why many people never pay off their full loans. This is why student loans clear the debt 30 years after you leave university. So if you’re concerned that you won’t be able to pay off your student loan – don’t worry!
Will my student loan affect my credit rating?
Your student loan will not impact your credit rating, but if you were ever to apply for a mortgage, banks and lenders may request information on the progress of your debt. This way they can decide how eligible you might be to take on more debt. But overall, the debt is unlikely to get in the way – even if you’re trying to get a mortgage.
How do I pay back my student loan?
Your student loan is taken off of your salary before you get paid, just like national insurance contributions, pension and taxes. You will only start to pay back your student loan once you earn over the threshold, and your student loan is then only taken off of what you earn over the threshold. So if you only earn £200 over the threshold each month, you will pay back 9% of £200 each month (£18).
You do not need to actively do anything to pay your student loans, however, you must make sure you let them know should you leave the UK or if you stop working. Generally, you should ensure that your employment and financial position are always up-to-date on the government website, as this helps the government to take the right amount of tax and the right amount of student loan.
You’re eligible to repay your student loans from April after you finish or leave your course (for full-time courses), assuming you’re earning over the threshold. Part-time students will be eligible for repayment from April for years after the course starts or April after it finishes – whichever comes first.
What happens if I don’t make monthly payments?
Since student loan repayments are taken in the same way that income tax is taken, those who are employed by a company will not need to worry about missing monthly payments. So long as your employment details are up to date, it is unlikely that your parents will go wrong. However, if you fail to update your employment details, you may be charged penalties.
Anyone self-employed has to pay their student loans in the same way that they pay their income tax: through a self-assessment. Just like with tax, failing to do so can incur penalties.