Paying back your student loan? Here are 5 expert tips on how to be money smart
Panicking about repaying your student loan? We’ve all been there. Graduating from university is one of life’s greatest accomplishments (especially in the midst of a global pandemic), so, if you’ve just done it — or are only a few months away — well done to you. Seriously.
The thing about graduating though — aside from the sad reality that you’ll no longer be living in a house with five of your best mates or be able to call a pot noodle a balanced breakfast — is that you’ll now have to start paying back your student loan.
Most students need financial assistance to pay tuition and housing fees, along with the cost of textbooks and other expenses, and though we might all take out slightly different loan amounts, the important thing to remember here is that the amount you’ll repay will be based on how much you earn, not how much you borrow.
As Student Beans, the top-rated discount app for students, explains: “Once you are working full time and earning over £27,274 per year your student loan payments will be deducted from your monthly salary before you receive it, in the same way that Tax and National Insurance are deducted. You’ll be able to keep track of how much you’re paying back by checking your payslips and logging into your Student Finance account to keep track of how much you’ve paid and still have to pay.”
Adding: “If your income decreases to below the threshold, or you are temporarily out of work, you will stop paying back your student loan until you are earning £27,274 per year again. So, you don’t need to worry about paying back your student loan if you can’t afford to.”
But, that doesn’t mean you necessarily have to just accept the above and get on with your life. There are ways to be money smart when repaying your student loan and make the whole process easier and more effective.
Below, Lewis Potton, Editor at Student Beans, gives us his top five tips on how to get savvy with your ‘baggy’ (it’s been a long day).
1. Use tax rebates and ‘found money’ where possible
It’s not uncommon to receive tax rebates at the end of the tax year if you have overpaid on tax. As tempting as it might seem to spend the unexpected income on yourself, Lewis Potton suggests using it towards your student loan repayments. “‘Found money’ doesn’t come around very often, so if you’re lucky enough to receive a tax rebate or come into some inheritance, for example, it’s a sensible idea to put that towards paying off your student loan to help you get one step closer to financial independence. However, we only recommend doing so if you can afford to and don’t have any other immediate financial needs that this money could support.”
2. Use bi-weekly repayments instead of monthly
Most graduates commit to monthly repayments for their student loan, however it can be more efficient to set up bi-weekly repayments, notes Lewis. “If this is something you can afford, it will help you to make significantly more progress with paying off your student loan debt. Even if the secondary repayment is much smaller than the first, it’s better to be paying off even the smallest bit more over the 12 month period, so long as you aren’t over stretching yourself financially.”
3. Enroll in auto pay
If you would like to make a consistent effort to pay off more than you already are, this is the most efficient way of repaying back your loan as it doesn’t require you to think about making the additional repayments so you can avoid being late/missing these additional payments altogether.
4. Stick with your repayment plan
One of the most important tips is to stick with your repayment plan. It’s important that you meet the expected minimum repayment fees to avoid potential fees. If your situation changes for example and you’re now out of work and can no longer make the repayments, it’s important that you contact Student Finance as soon as possible to notify them of your change of circumstances so they can assist you further.
5. Avoid additional debt
Last but not least, the worst thing you can do whilst trying to repay a current debt, is to commit to another. Lewis Potton comments, “Whilst further debt such as credit cards and overdrafts can seem tempting at the time, adding more debt will just increase your financial stress and overall repayment period. Understandably this can’t always be avoided but we do recommend not using further debt as a payment method where possible.”