Are Student Loans Worth it and What Are the Alternatives?
Student loans are a touchy subject as it is with many students themselves thinking that they should not exist. However, the sad reality of life is that they do and so you will need to know exactly how they work and the kind of alternatives you are faced with. Here at Frugalalot, we know and understand that pain, and that is why we have made this article to explain to you all the facts in the best way possible. If we are going to tackle these questions, then we need to answer the overarching question first- what actually is a student loan?
What is a Student Loan?
Luckily for you, student loans are pretty much exactly how they sound. It is simply a loan given to students that is worked out based on your parent’s earnings and family situation. These loans are only available to students applying to university or any other form of higher education and they only come in loan form so you will have to pay them off.
However, this is where it gets a little bit more complex. Because a student loan does not just cover the cost of tuition, there is also the maintenance loan that you will need to consider.
A maintenance loan is something that often needs explaining and that is exactly what we will do. The maintenance loan is designed so that you can pay for all your expenses while at university, or whatever higher education you pursue, and pay for said expenses using a loan that is appropriate to your personal situation. This means that when you apply for a maintenance loan, you will be asked a number of questions about your parent’s income, whether you apply for any benefits and the kind of family situation that you have. All of these will be taken into account when deciding how much you get.
How Much Do You Get?
If you wish to take advantage of student loans to pay for your tuition fees then the amount that you get will be equal to the cost of your course- for the vast majority of courses, this will be £9,250 which is also the most that a university can charge for a course.
However, a maintenance loan is where things get a little interesting. As mentioned above, the maintenance loan is something that can vary hugely because of the criteria for getting one. For example, a small student loan that you can get is the following, £3,410. This is acquired if you are living at home while you study and your overall household income is over £58,222. If you live away from home, you study outside of London and your overall household income is less than £62,249, then you are entitled to £4,489. The most that can be obtained via this scheme is £12,010 and that is from living away from home, studying in London and with an overall household income being less than £25,000.
Of course, they are plenty of numbers in-between and you will find yourself somewhere on this scale.
Is it Worth it?
Well, the answer to this is… it depends.
It is worth it if you are 100% sure that you want to go to university or any other form of higher education. The reason we say this is because the debt that you will pick up will be fairly considerate and so you will want to make sure that you made the most of it. You do not even need to know what you will do after higher education; you just need to be sure you want to go.
It is worth it if you cannot afford any of the alternatives that are presented to you. Do not worry, we will cover the alternatives to the student loan, but, if you cannot afford the alternatives or they are simply not feasible for you then you should take a student loan.
On the flipside, if you are able to use the alternatives then it is best that you do. The reasons for doing so will become clear in the next section.
You also may not want to jump into the commitment of a loan if you are not sure about higher education.
What Are the Alternatives?
Now for the moment we have all been waiting for, the alternatives to the student loan. Sadly, these are not quite as eye opening as you might hope.
The only real alternative you have is to pay for it yourself. There will be different payment methods to do this but it all essentially revolves around you paying rather than receiving a loan for it. However, it is not all doom and gloom, there are a couple of ways that you can do this.
- Savings- The vast majority of people have savings accounts, if you are unsure that you have one then check with your parents. If you put some money into a savings account every month or every year, then you may well have enough to pay the costs upfront. You may even have a dedicated savings account to pay for the cost of university.
- Pay one and not the other- Since the student loan can be broken down into your tuition fee and your maintenance loan, you could only pay for the tuition fee. This will put less financial pressure on you and mean that you will be in a better position to pay off the fees for the minimum three years you will be there.
- Get a sponsor- This is a more unusual alternative to the student loan and yet still one that is used by students. You can get someone to sponsor your education and pay all the fees that come with that. The process to do this is a little more complex as it requires confirmation of your sponsor and financial information as to how the money will be paid. But, do not be dismayed by the process as this is a very real option and one that you can consider.
How Will You Have to Pay Off the Loan?
Paying off your student loans is inevitable and so it is best to know how the loan works and how you can pay it off.
You can start paying off your student loans and the interest you will have acquired on it, interest will be acquired from the moment you start university, from the April after you graduate. However, you will only need to start paying off your loan if you are earning over £25,725.
If you do earn over £25,725 at some point in your life, then the amount that you will have to pay will be 9% of everything over that baseline figure. To help us explain this, here is an example.
Say you earn £30,725 each year, that is £5,000 over the baseline amount. That means that the 9% of £5,000 (£450) will have to be payed towards to the upkeep of the loan. As the amount of money you earn over the baseline increases, so does the amount that you have to pay.
However, your debt does not just stay at same, there is interest on that loan and as the loan stands, it gets larger and larger. Now, the interest rate that is attached to your loan can and will change depending on the RPI rate- this is the Retail Prices Index and can change. The interest will be the RPI plus an extra 3%.
For example, the RPI rate in March of 2019 was 2.4%, therefore, the interest charged on loans for the 2019/20 academic year was 5.4%.
When You Graduate
After you have finished studying, you will still acquire interest on the remainder of your loan and the interest will match the RPI inflation. The more you earn, the more interest you will pay on your loan. The rate will rise slowly from RPI all the way to a maximum of RPI plus 3%- the interest rate that you will have when you are studying.
The loan will exist for 30 years and if you have not paid off the loan by then, then the loan is cancelled. For more information please contact the student loads company
Another way to make a student loan more worth it is to make the most of what you have. If you learn a few simple tricks about how to budget properly, how to make the most of your money and where to find deals as a student, then you will make the most of your loan and it will not seem like such a hard deal.