Student Loans
For many
students in the UK their only option is to fund their studies with
student loans. A company has been set up specifically for this
reason and is logically called the Student Loan Company.
Now that students do
not get grants and have to pay their own tuition fees, a change
which has only happened in the past few years, most students end up
in a significant amount of debt by the time they graduate.
The interest rates on
these loans are very high and are not set to make a huge profit but
purely to cover the interest rate on the open market. In addition to
this, the repayments are not due until the borrower is earning a set
salary. Once a year the Student Loan Company contact all of their
borrowers and inform them of the minimum salary requirement in order
to be eligible to start making loan repayments. The borrower then
states their income and has to provide proof of it by way of wage
slips covering the previous three months. The Student Loan Company
then assess whether they are required to make repayments or not and
if they aren’t the loan is deferred for another year and the cycle
repeats itself. The beauty of this system is that all of the loans
held by the borrower, which can be up to four in most cases as that
works out to one per year of study, are held in the same place. The
interest rates are calculated on each loan individually as the first
one has been held longer than the fourth and the loans would be for
different amounts, but the repayment would be calculated to cover
all four. This would mean that only one sum would be paid per month
rather than four separate ones.
Should a borrower
fail to reach the minimum salary requirement within a set number of
years, the loans are cleared and the debt written off. This is done
because the majority of university graduates will go on to earn
higher than average salaries and so will pay off their loans. It
also gives a safety net to those who fail to earn high wages as
repayments can be quite high given the total sum many students
borrow.
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