The graduation balls are over. Up and down the country, thousands of final year students are nervously awaiting their exam results. Like it or not, the real world beckons.
And that real world doesn’t look all that appealing for recent graduates. A troubled job market and monthly repayments to the Student Loan Company make Jäger bomb-soaked uni days seem like a fast-fading dream.
Fortunately – help is at hand.
In the first of this three part series, we’ll be taking a look at one graduate’s debts - how much she owes, the interest and what it all means for her credit rating.
How much student debt do you have?
Medical graduate Harri Roe has recently graduated from Southampton University. She puts her student debt at a whopping £42,000 – a huge sum compared to average debt levels for shorter degree courses (around £26,000).
These are hefty amounts – but nothing compared to what future graduates can expect to be saddled with. Some 2012 freshers should brace themselves for student debts of over £50,000. Medical students starting university this year will leave with debts of up to an eye-watering £70,000.
Unsure about how much you owe? Check your loan balance here.
What’s the interest on your student loan?
Harri started uni between 1998 and 2011 (she was a fresher in 2007). This means that her student loan interest rate will be the lower of these two options:
The Bank of England base rate + 1%
OR
The rate of inflation (RPI measure)
This year, the first option is the lower. The Bank of England base rate is 0.5% – so this means students this year are paying 1.5% interest on their student loans.
The relatively low interest rates on Harri’s student loan make it the cheapest form of borrowing she’s likely to get her hands on. This means it makes little sense for her to pay it off too quickly. If Harri has any excess cash at her disposal, she’d be better off stashing it away in a higher interest tax-free ISA – rather than using it to pay off her loan faster.
For 2012 starters, it will be another story. Their interest rates will be:
The rate of inflation (RPI) +up to 3%
To give you some example of what this will mean – this year’s inflation rate was 3.6%. Add another 3% on top of that and you’ve got a student loan interest rate of 6.6%. When the 2012 freshers graduate, rather than stashing cash in an ISA – it could be worth their while channelling funds into clearing their student debt faster.
Will your student loan affect your credit rating?
For Harri – her student loan shouldn’t affect her credit rating. If you started university after 1998, your student loan will only impact your credit rating if the Student Loan Company has taken out a county court judgement (CCJ) against you for failing to cough up. However, lenders will probably ask Harri if she took out a student loan. They might also ask her about her take home pay – which will take into consideration her student loan repayments.
If you started uni before 1998, failure to keep up with your student loan repayments could result in a black mark on your credit rating.
Tomorrow we’ll be taking a look at how Harri could go about clearing her student loan and other debts.
