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How to shoulder the burden of student loans

Student loans. Chances are you fall into one of two camps – the ones burying their heads in the sand, or the ones petrified of graduating with an average £50k debt. Those lucky enough not to have taken out a loan need not read on.

When the cost of a university education trebled to £9,000 in 2012, and maintenance loans were brought in to replace the grants that equated to free money for students from lower income backgrounds, it was obvious the next generation of graduates would emerge from higher education institutions with hideously large bills alongside their degrees.

Oxford students are working under one of the world’s most expensive university systems

And with 6.1% interest kicking in as soon as the semester starts, the Institute for Fiscal Studies (IFS) has worked out  that the average student will have racked up £5,800 in interest alone before they have even graduated. 

That figure will rise in September this year when the interest rate on loans reaches 6.3% as a result of the increase to the Retail Price index (RPI).

Even with the news that graduates can now earn £25,000 before having to start repayments – up from £21,000 – it’s still a bitter pill to swallow given that Oxford students are working under one of the world’s most expensive university systems.

But it’s not all doom and gloom. Due to the way student loans are repaid – based on earnings and not the amount borrowed – the total figure owed can be largely ignored.

Graduates repay 9% of their annual income over £25k, no matter what they borrowed while studying. For example, a graduate earning £30k will repay 9% of £5,000 – the equivalent of £37.50 a month or £450 per year. 

In addition, student loan ‘debt’ doesn’t affect your credit score and any unpaid debt is wiped after 30 years. The IFS estimates that 83% of graduates will never pay back the total amount they borrowed with interest. Only the very highest earners will repay in full. 

With the psychological connotations of ‘being in debt’ worse than the financial reality, it is far better to view your repayments as a graduate tax or contribution that comes off your payslip, rather than a debt repayment.

Nevertheless, budgeting carefully and planning your post-graduation financial and career strategy now is advised.

HelloGrads’ top tips for transitioning from academia to the real world:

1. Prepare your CV and LinkedIn profile now to be gainfully employed sooner. If it looks a little sparse, think about what you could get involved in before graduation, be it student media, volunteering opportunities, or temping for a local business.

2. To make extra cash and enhance your CV while job hunting, try selling something on sites like Etsy or eBay. Look at flexible brand ambassador and promotional roles if your career plans are focused on sales, PR or marketing.

3. Big businesses have big budgets for graduate hiring – you may well see them on the milkround – but 99.3% of British businesses are small, and may do little beyond posting roles on their websites or online jobs boards. Use your detective skills to draw up a list of small businesses you’d like to work for, approach the founder or director with a personalised email or call to see if they hire graduates and what skills they look for. Follow up with your CV if requested.

4. The biggest expense post-university is normally private rented accommodation, including deposits, fees and furnishing. If you don’t have relatives who will put you up, start saving as soon as possible.

5. Don’t sit at home waiting for your dream job to come knocking; use the down-time to make some extra cash. Look at dog walking, babysitting and tutoring which can be fitted in around interviews and work experience. There are several apps and websites that let you advertise your services and experience, usually in return for a small fee based on successful bookings.

6. Check the terms of your current account, especially if you live in the red. Often, banks will automatically switch you from a student to a graduate account after you leave university, and reduce the limit of your free overdraft in stages, so work out how you can pay it off accordingly, and mark the deadlines in your diary. Watch out for packaged accounts that come with a monthly charge – as there are many free options.

7. Once you have a secure job, get into the habit of putting 10% away into an easy-access rainy-day fund at the beginning of each month, until you have enough to support you through periods of unemployment, or a home move. Once that’s full, put your 10% into a higher-interest savings account.

8. It’s never too early to start contributing to a pension. Don’t opt out of your employer’s scheme – as they have to contribute to your pension pot as well.

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