As a student, borrowing money at certain times may be unavoidable, and it’s certainly not common to get through life without ever having to do this. Just think about mortgages, or car loans. Rather than thinking of credit as good or bad, it’s more helpful to think about whether it is manageable. This means considering if the cost of credit outweighs the benefits of what you would like to buy, and thinking about the impact that this will have on your finances.
This page is designed to help you understand the type of questions you should ask yourself before making a decision to apply for credit, help you understand the types of credit that are available, and help you understand the impact that borrowing can have.
You’ll also find help to get the most out of your money when it comes to repaying any existing debts you might have, and where you can get advice and guidance if this becomes unmanageable.
Most students borrow money in the form of the student loan as this is how student funding works in the UK. Depending on the type of student you are, the student loan may make up 100% of your student funding package, so it’s really important to understand how this works.
While the idea of a loan may seem scary, it’s important to understand how the student loan differs from other types of loans, and what makes it special. The information listed below should help you understand more about the student loan works (see also Student Loan repayment information using the link immediately below).
Don't need it, don't take it
You don’t have to take the student loan, or you can elect to take less than the full amount available to you. It does make up the majority of your support package though, so you should think carefully about how you are going to get by without it.
Where does it come from?
The Student Loans Company (SLC) is a UK public sector organisation, administering student funding schemes on behalf of the government.
How much does it cost?
Unlike other forms of credit, the student loan does not have an interest rate that is designed to make the Student Loans Company money. Instead, the rate of interest is linked to inflation, making it much cheaper than commercial alternatives (like bank loans, credits cards etc.).
How much do you pay back?
With interest rates linked to inflation, the amount you pay back will be about the same in real terms as the value of the amount you borrowed. For example, if you borrowed a penny to buy a sweetie from your local sweetie shop in the 1970’s, but that sweetie, because of inflation, now costs 5p, you would pay back 5p.
When do you start paying it back?
You do not have to start paying back your loan until the April after you graduate or leave the course. At that point, you become liable, but you do not repay anything until your income is over a set threshold. Currently, that threshold is around £26,500 (England/Wales) or £19,380 (Scotland and NI).
These thresholds do change so will likely be different by the time you become liable to repay. However, it is very unlikely that the threshold will reduce. The Scottish Government have announced that they are aiming to increase the threshold for Scottish students to £25k.
Different thresholds may apply if you have accessed a Postgraduate Loan through Student Finance England or Student Finance Wales.
How do you pay it back?
Unlike commercial credit, you won’t have to repay your loan over a fixed period. When you are earning above the threshold, your repayment amount will be based on your earnings. Someone earning £26K a year will pay back much less each month than someone earning £50K a year.
You pay 9% of your income over the threshold*. For example, if you are Scottish and earn £22K a year, take away the £19,380 threshold and you pay 9% of £2,620, which is £235.80 for the year, or £19.65 per month.
The SLC works with HMRC to collect your payments from your salary, in the same way that you pay tax and national insurance. If you are self-employed, HMRC will collect payments through the self-assessment system.
*Different rates may apply if you have accessed a Postgraduate Loan through Student Finance England or Student Finance Wales.
Can you pay it back quicker?
You can make extra payments direct to the SLC if you want, but remember to think carefully before doing so. If you have others forms of credit, e.g. a mortgage or car loan, you are always best to pay off the most expensive debt first, which is almost never your student loan.
What if you don’t earn above the threshold?
It’s quite simple really – if you don’t earn above the threshold, you are not expected to make repayments. This is the case even if you have been making repayments but your income falls. For example, if you have been working and making payments, but take time away from employment to have a family, you would not be expected to make any repayments.
Does it affect your credit rating?
The student loan, unlike other forms of credit, will not affect your credit rating. It won’t show up on any credit check.
You can find out more about credit ratings in the sections below.
Will you be paying it back forever?
Probably not. There is a period of liability that starts the April after you graduate or leave the course. This ends after 25 years for students from England/Wales/NI or 30 years for those from Scotland. If you never earn above the threshold, or don’t pay it all back within the period of liability, any outstanding amount is written-off.
Other types of student borrowing
Being a student doesn’t mean you are exempt from the normal costs of living that many people face, but being a student might give you access to preferential rates where you absolutely need to borrow money, such as an interest free overdrafts*.
It’s always best not to borrow when you can avoid it and the section below can help you make this assessment, but where you do need to borrow the golden rule about student borrowing is simple – always borrow in the following order:
- Student loan
- Interest-free overdraft
- Commercial borrowing
Don’t forget to get the most out of your bank account by taking advantage of student accounts. You can find more information in our dedicated Banking section.
*Remember, anything you borrow through an interest free overdraft will need to be repaid. If you have been able to access an interest free overdraft through your student bank account, you should ensure you understand the terms for repayment and plan ahead for this.
Being a student doesn’t mean you are exempt from the normal costs of living that many people face. This may mean that, in addition to your student loan, you borrow money from commercial lenders who make money from you, unlike with a student loan.
If you find yourself in this position, it’s important to understand how borrowing works, how much it costs, and the impact this can have on your wider finances.
Before you borrow
Before you think about borrowing money it is important to remember that you are making a commitment to repay this. Before making this decision, there are a couple of important things you need to do.
Firstly, make sure you have all the income you are entitled to through student support, benefits and income through employment. There is no point borrowing money where you may have access to financial support. Many students will find themselves eligible for other university funds that may help.
Secondly, make sure you are making the money you do have stretch as far as it can by budgeting effectively. This means taking the time to look at what money you have coming in and going out and preparing a realistic budget to help you understand what you can afford to spend.
For more information and about help about budgeting, and getting the most out of your money, check:
Lastly, ask yourself do you really need to make the purchase, and is it going to be worth it once you factor in the true cost?
Borrowing money to buy the essential things in life, like food, is not recommended. If you are considering borrowing money because you struggle to make ends meet each week or month, you may wish to book an appointment with an adviser where we can support you to reassess your finances and prepare a budget.
Can you afford the true cost of borrowing?
Borrowing money will involve making repayments, so it is important that you calculate how much of a repayment you can afford before committing to any agreement. You shouldn’t try and commit to borrowing if the repayment is more than you can afford as the impact of not being able to keep up your repayments as agreed can be significant.
It’s also important to calculate any repayments based on the true cost of borrowing, which is the amount of money you plan to borrow plus the interest that you will be charged. Most lenders will be able to tell you the true cost of borrowing from them before you apply or commit. Those that don’t will give you enough details to work it out yourself, which can involve a little bit of mathematics.
APR stands for Annual Percentage Rate and is the way most lenders reflect the cost of borrowing. Comparing APRs of different lenders is the easiest way to compare which is cheapest, and helps you calculate the true cost of borrowing. If you are comparing lenders, those offering the lowest APR are the cheapest.
A good resource to use is the Money Saving Expert's interest rate guide for beginners, which explains everything you need to know about interest rates including savings, credit and APR.
It is very important to stick to the repayment terms of any loan you take out, and to pay at least the minimum payment towards credit cards each month. If you miss payments, or fail to pay the amount you should, this can impact your credit history which can have a knock on effect on your wider finances. See the section below on credit rating/scoring.
Generally, people with higher incomes are able to access cheaper rates when they borrow. This is because lenders will view them as less risky than those with lower incomes, but that doesn’t mean those with lower incomes can’t find good deals. It might just take a little bit of research, and involve using less well known lenders.
Managing your repayments effectively
If you have repayments that are a flat rate each month or week, it’s pretty easy to keep track and to adjust your budget to account for these.
If you have borrowed through a credit card it can be more difficult to plan ahead and budget when the balance can fluctuate and there isn’t the same fixed term for repayments. Your lender will issue a statement each month which will detail your minimum monthly payment but you should consider paying more than this as it can save you money in the long run.
You get a credit card with an interest rate of 25% and use it to buy a new laptop that costs £500. Each month, you receive your bill. It tells you the outstanding balance, how much interest will be added if you do not pay in full, the minimum payment you need to make that month and the date by which it needs to be made.
- If you only ever pay the minimum amount, it will take you 48 years and 4 months to pay the balance, costing £3,413 in interest.
- If you make a fixed payment of £10 each month, it will take 12 years and 5 months and cost £983 in interest.
- If you make a fixed payment of £20 each month, it will take 2 years and 11 months and cost £180 in interest.
With the above illustration you can start to see how far an extra £10 per month can go to reducing your total debt repayment. Money Saving Expert's minimum repayments calculator can help you to work out how much it costs to borrow on credit cards, and how much you could save by paying even a little above the minimum monthly payment.
Always try and use direct debits so you don’t have to remember to make the payments every month. Keep a note of each payment date, and check your bank account regularly to ensure you have enough money to cover the payments.
The general rule about repaying debts is to pay the most expensive debt first. While it can be tempting to get rid of the smaller debts first, it will only cost more in the long run.
Types of borrowing
There are lots of different types of borrowing that can be offered by different types of lenders. Here are a few key pieces of information:
- Credit cards allow you to spend money you don’t have and apply an interest rate. These are best avoided for everyday spending or withdrawing cash and it's a good idea to pay in full each month to avoid interest.
- Store cards are like credit cards that tie you to one store. They usually offer great introductory deals but can have high interest rates.
- Catalogue accounts are like store cards where you are extended credit to buy through a specific catalogue.
- Hire purchase is like a rental agreement. You pay weekly or monthly amounts but don’t own the product until you have paid in full. Weekly amounts may seem manageable but interest rates can be massive.
- Bank loans are hard for students to come by and involve you receiving a lump sum and paying a regular amount back each month. Unsecured loans are the most common for borrowing smaller amounts. Secured loans are more serious as they are secured against something valuable, such as a home or car.
- Payday loans are short term loans designed to cover the shortfall before payday. They are not designed for students and are best avoided. They might seem like a good deal to begin with, but many people, especially students, struggle to repay as agreed, meaning extra charges are added and the debt spirals out of control.
- Doorstep lenders, such as Provident, offer loans and manage the repayment through home collections. Rates tend to be very high as the company target those from lower incomes who might not be able to borrow from conventional sources.
- Credit Unions offer a variety of financial products and services from savings to loans. They are a member based organisation so your savings will impact the type of borrowing available to you.
Generally, people with higher incomes are able to borrow from conventional lenders, such as banks, with little issue. This is because lenders will view them as less risky than those with lower incomes. People with lower incomes can find it more difficult to borrow from conventional lenders, so are often left with little option but to borrow from more expensive lenders and pay higher rates of interest.
It is possible for those with lower incomes to access fair and affordable credit. It might just take a little bit of research, and involve using less well known lenders. Whether you are from Renfrewshire or not, the Renfrewshire Affordable Credit Alliance has helpful information for you.
*NEW* Buy Now Pay Later
The new borrowing on the block is Buy Now Pay Later, which sounds like a great deal. For those who can stick to instalments and don’t overspend, it probably is...but is that you?
Companies such as PayPal, Klarna, Clearpay and Laybuy offer customers the chance to pay purchases off in instalments, pay later or pay at 0% over a set period. This can be both online and in store and is common in the fashion industry.
The main pitfalls with this type of borrowing are:
- You can easily be tempted to overspend.
- Whilst each provider might have a low limit, you can end up owing £1000s over multiple providers.
- If you struggle to make repayments you will be charged fees which can vary wildly.
- This industry is going to become regulated soon but isn’t as of yet, it may be 2022 before regulation comes into effect. This means that currently you do not have FCA protection on this type of borrowing. Regulations proposed will be affordability checks, possibly credit checks and more support for people who are struggling. However, if you take these types of credit deals in the meantime, you may still fall foul of their current rules. There is no section 75 protection and currently no ombudsman to direct any complaints to. Find out more about the proposed regulation here.
Many students are using companies like this to spread or delay the cost of shopping, but make sure to carefully consider what you are getting yourself into and whether this is right for you.
Whenever you apply to borrow money, it is likely that the lender, as part of your application, will want to know more about your financial history.
This is called a credit check and will allow the lender to see how much you have borrowed from other lenders and how well you have managed the repayments. If you have not managed repayments very well in the past and have had charges for missed or late payments, your new lender may be able to see this during your credit check and will take this into account when making their decision.
When it comes to credit ratings and scorings, there is no such thing as a universal system as every lender has their own system, but it is a good idea to take actions to improve this, which can result in you being offered credit with better deals attached.
You will find a lot of useful information about credit scores and how to improve yours on Money Saving Expert.
It is important to stay on top of your debt so things don’t spiral out of control as the impact of not making your repayments can be significant and long lasting. For instance, your credit history could be affected which can make it more difficult to buy or rent a home, take out a mobile phone contract, buy a car or pay for insurance on a monthly basis. Our debt toolkit can help you stay in control of your debts, avoid any money mishaps, and ensure that you are getting the most of your repayments.Download (PDF)
UWS PAYMENT PLANS
If you are paying your own tuition or accommodation fees, depending on your circumstances, you may be able to pay these through a payment plan. It is important to remember that UWS is extending a credit facility by allowing you pay these through a payment plan rather than in one instalment. If you do not adhere to your agreed payment plan, also known as defaulting on your payments, we may be unable to extend this facility.
You can set up your payment through our online system, making it easy to stay on top of this.
If you owe money to creditors and you have been struggling to make the repayments, there is support available through the following organisations:
Step Change is a UK wide Debt Charity which offers free and impartial debt advice. Their Debt Remedy tool allows you to enter details of income, expenditure and debts anonymously. You will then receive a personalised action plan with lots of advice on how best to deal with your creditors and recommendations on the debt remedy best suited to your situation.
If you decide to proceed with a debt remedy you won’t have to attend any appointments or meet with an adviser face to face. This can all be completed online with telephone advice available at any stage should you need it.
Debt Support Trust
Debt Support Trust is a UK wide Debt Charity which offers free debt advice. You choose how you wish to receive this advice. You can make contact via telephone, email or by taking the Debt Test online. Advisers will help you decide on the best debt remedy for your circumstances.
National Debtline is a free, independent and confidential debt advice service run by the charity Money Advice Trust. They have a lot of useful information including guides, fact sheets, budget tools and sample letters to help you write to your creditors. They also have a free advice line that you can use to speak to expert advisers who can help you deal with your debt.
Citizens Advice Scotland
Citizens Advice Scotland offers the largest independent advice network in Scotland through Citizens Advice Bureaux across the country. They have a lot of useful information online to help you manage your money, and also have professional, qualified advisers available to guide you through an action plan.
Christians Against Poverty
Christians Against Poverty is a charity which was set up to assist people with debt. CAP will help anyone regardless of their religious beliefs. A CAP Debt Coach can visit you at home and provide advice appropriate to your situation. CAP distributes payments to creditors on your behalf. Payments will be affordable to you and will even allow you to save whilst paying off debt. CAP can also attend court with you. All services are free.
Money Advice Service
The Money Advice Service is an independent service, set up by the government, to help people manage their money. They do this through a free and impartial advice service and also work in partnership with other organisations to help people make the most of their money. MAS also has a debt advice locator tool. If you prefer face to face advice this is particularly helpful as services vary depending on where you live.