Student loans are a big bugbear the world over, with students in the UK and the US spending various decades to fully settle their debts. With many students set to owe around £50,000 by the time they graduate, it is vital to find a way to pay off loans earlier rather than later, so that life goals such as home ownership can be achieved in one’s 30s or even late 20s. In this post, we highlight the reasons why early repayment is key and suggest ways to achieve it.
Thresholds in the UK are low
The income threshold in the UK for repayment of student loans is significantly lower than it is in a country like Australia (where the threshold starts at approximately $55,000 AUD, with a repayment rate of 4% or more depending on the extent to which incomes exceed the threshold). In the UK, the threshold stands at either £18,330 for Plan 1 students and £25,000 for Plan 2. Therefore, you could well find that in the first year after graduation, your debt-to-income ratio is already significantly burdensome.
Second jobs are key while studying
Around one in seven students in the UK work full-time while they study and nearly half have a part-time job. Around 35% do it to avoid being heavily indebted, 38% in order to save for the future, and 53% to improve their chances of employment. Those who work part-time generally earn around£400 by working part-time.Without a doubt, working while studying for an undergraduate or postgraduate degree is an ideal way to kill two birds with one stone. Students who are able to present prospective employers with a CV that shows experience and skill in their area of study are of significantly greater interest to employers who are keen on saving on training costs.
How much to set aside
Commit to a realistic amount you can set aside per month and don’t waiver. It might be 10%, for instance. Budget how much you wish to pay off your student loan per year and see if you can realistically do so, bearing in mind your accommodation and living expenses. Jobs to consider include blogging and social media for companies, sales, event organisation, or working in hospitality. While you will undoubtedly gather valuable experience wherever you work, an internship should be your ultimate aim, especially if you can land a job at one of your shortlisted companies for future employment.
In addition to considering part-time work, you can also apply a part of any windfalls that come in during your course of study (an inheritance, bonus, gift or other amounts) to pay off your loan. Not only will you reduce your future debt-to-income ratio, you will also pay significantly less interest.