Student Loan Debt Relief

When I went to college I received a full grant - we didn't know how lucky we were! Today's students have to take on a shed-load of student loan debt to get themselves through Uni. Student loans are not like other loans, which is why I am devoting a separate section to them here.

The information that follows is specific to the UK and relates to student loan debt arising from loans through the Government's Student Loans Company. Lots of other loans may be available to students, but they are nor official Student Loans and should just be treated the same as any other personal loan.

Student Loan Debt Relief - What is Different About Student Loans?

If you are going to have debt, then student loan debt is one of the best sorts to have. The interest rate payable isn't proper interest at all, as it is only the rate of inflation that is charged. This means you are just paying back enough money to ensure that what you repay is worth as much as it was when you borrowed it. (as inflation and the cost of living has tended to rise each year, if you borrowed £10,000 and paid it back ten years later without any interest, it would be worth a lot less than it was when you borrowed it).

For the reasons given above, student loan debt is pretty much the cheapest debt you can have (apart from short term 0% deals on credit cards).

Student Loan Debt Relief - Should I Pay It Back As Quickly As I Can?

One of the standard top tips discussed elsewhere on this site is normally 'pay off debt with savings'. With student loan debt, however, this does not apply. The whole reason that I would normally urge you to use savings to pay off debt is that the debt will cost you more in interest charges than you will get in interest from your savings. With student loan debt, the opposite is the case.

If you owe £10,000 in student loan debt, and you have that amount in savings, you will get more by sticking the money in a high interest savings account than you would pay in interest on the loan.

If you don't have savings and have other debts, then the same principle applies, you still shouldn't pay it off. Your other debts will certainly be costing you more in interest, so you should pay them all off first and leave the student loan debt until last.

If you pay it off quickly you may end up having to borrow money in the future, which will certainly cost you more in interest than the student loan debt. So it is particularly important not to pay off the student loan debt sooner than necessary if there is any chance you may need to borrow money after you have done so.

Student Loan Debt Relief - When Do I Have To Pay Back My Student Loan?

That depends on when you took it out, because the rules have changed. If you started your course earlier than 1998, you have to repay it over five years in regular monthly instalments. Your repayment is deferred if you earn below a certain amount.

For loans taken out since 1998, the repayment is through the income tax system. You effectively pay a higher rate of tax until the loan is paid off, so the payment is taken straight from your salary. Since the repayment amount is a percentage of your earnings, the more you earn, the quicker you pay off your student loan debt.

Student Loan Debt Relief - What If I Don't Manage To Repay My Student Loan?

Under the current system (loans taken out from September 2006), the loan is written off if not repaid within 25 years. Any outstanding student loan debt is also written off if you become permanently unfit for work or if you die.