Many students today are facing debts of 40 grand or more by the time they complete their degrees.
Thanks to rising tuition fees, student accommodation and lower starting wages, fewer and fewer students are choosing university for fear of the mounting debt that they will have to pay back.
But if your career is one that depends on a university degree (which many, like the medical professions, still do), then ditching uni may not be an option for you.
Therefore, you’ll want to embark on a university degree whilst minimising what you’ll need to pay off in the end.
Whether you’re preparing to go to uni, already studying, or just about to graduate, there are certain things you can do to minimise your student debt drastically.
Caro Lettings is here to share these five ways you can minimise your student debt….no matter which stage of uni you’re at.
1. Avoid Other Debt
For many students, post-uni debt comes in the form of many sources, not just their student loans.
Make sure that doesn’t happen to you, by learning to manage your money effectively and avoid other debt.
- Choose a student bank account with the best interest-free overdraft. That way, should you need a little extra, it’s not going to come around and bite you in the butt.
Book an appointment with a financial advisor, or ask an older relative when reviewing various bank account options. Ignore introductory freebies that may make an account seem appealing at first, but will do little for you in the long-term.
If you’re already at uni, you can speak to one of the financial advisors at your Union or Guild, or look on their website to see what accounts they recommend for students.
- Avoid credit cards as a ‘regular’ payment method. Credit cards can be a great way to pay for larger investments or purchases, and improve your credit score. But only if used in the right way.
If there is something expensive you wish to buy and you don’t want to part with the cash up-front, choose a card with a generous interest-free period, like 16, 18 or even 22 months. MoneySupermarket can help you choose the best card based on your circumstances and needs.
- If you do ever need some money in an emergency, do not go to short-term, instant loans! It may seem appealing when you’re waiting for your next loan instalment, but they come with pushy repayment rules and astronomical interest rates.
Instead, talk to your Union or Guild financial advisors, or even apply to your bank for an overdraft increase (rather than going over the limit).
If you do need some fast cash, you could try one of the tips mentioned in our money-making tips blog post.
- Avoid store cards like the plague! Store cards may also seem like an attractive way to shop at your favourite stores. But these cards often have interest rates as high as 30%, so don’t make for good-value borrowing in the long term.
2. Learn to budget (and stick to it).
Even if you’re already partway through your studies, it’s never too late to start budgeting. And if you’re a new student preparing to go to uni, it’s probably one of the most beneficial things you can learn.
Budgeting ensures you’ll spend your money at a steady rate and always have enough for the things you need.
How to create a budget
1.Write down how many student loan instalments you will receive during the university year, and what dates they will come in.
2. You’ll need to budget for each period of time in between loan instalments. So count the number of weeks from the first to the second; second to the third etc
3. If you receive any other income other than your student grant/loan, such as job wages or money from parents, add this to the amount of loan for each number of weeks.
4. Add up the bills you’ll need to pay between each loan instalment. This is likely to be rent, internet, other bills, your mobile phone bill and any miscellaneous payments, like Netflix. Most of these will be paid monthly so you’ll need to calculate how many bill payments you’ll have to make before the next loan comes in.
5. Take away your total ‘cost of living’ from your total amount of money (loan, grants, wages etc). Whatever remains is how much you have to spend on food, textbooks, nights out, and whatever else you want, before you receive your next loan instalment. If you want to be more organised, you can even divide this amount into other expenditure, having a budget for food, a budget for studies and a budget for having fun.
6. When you receive your next loan instalment, repeat this process again to budget for the next few weeks.
Tips on Maintaining your Budget
- Use cash wherever possible. If you limit the number of purchases you make on card, this will make the money seem more ‘real’ and more valuable to you.
- Use a smartphone app that can help you keep track of your spending. Mint or OnTrees are two of the best apps on the market that can help you set saving goals, stick to your budget and monitor where you spend the most money.
- Have a ‘budget buddy’. Doing budgeting with a friend means you’ll hold each other accountable and it’ll even make it more fun.
- Reward yourself for sticking to or staying under your budget on a weekly or monthly basis. This might be by buying something you want with the money you saved or letting yourself have a night off from studying.
- DON’T include your overdraft when adding up your available budget. This is for emergencies only.
- Money Saving Expert’s ‘Budget Brain’ is a great little tool you can use to see exactly how much you’ve got to spend, once you enter your essential costs.
- Money Saving Expert’s ‘Money Makeover’ can help you save even more money by ensuring you’re getting the best deal on everything, from internet to gym passes.
3. Get a part-time job.
It may sound boring, but having a part-time job alongside your studies is always a great way to boost your income.
This gives you more room to enjoy yourself and buy things you need, without dipping into your loan as much. You then have the option put some money to one side in a savings account for after uni.
- If you’re hoping to make a serious income, look past the generic student jobs to things that are useful and stimulating (they are out there!). Sometimes it’s possible to get well-paid jobs such as translating, tutoring, writing up notes for other students in lectures or counselling, which only require a few hours of your time a week.
- Talk to your university’s career department to see what positions are available within the campus. Let them know you’re looking to help others using your own natural skills, as some jobs aren’t always advertised.
- Offer your services on Fiverr! We talked about Fiverr in our previous money-making tips post, but if you have a talent or special skill, Fiverr can be an easy and convenient way to use it in exchange for money.
- Taking part in studies for the psychology or science departments can also be easy ways of earning cash. Most of the time they simply involve completing easy tasks or giving your input on a survey. It’s unlikely you’ll ever be asked to do anything too risky, so the money is well worth it.
- Fill in online surveys in your spare time. Online surveys and questionnaires can be good ways to quickly rack up a few quid, maybe even to fund a night out or a month of Netflix. It won’t be fantastic money, but it can take care of the little things. And you can do it whilst watching TV, in your pyjamas.
4. Make sure you’re getting what you’re entitled to.
Thanks to additional sources of funding, such as bursaries and scholarships, it may be possible to limit the amount of loan or grant you apply for
That said, sometimes it’s useful to apply for the full loan and grants available to you just in case, then place any additional funding into a savings account for after university.
- Every student is entitled to a tuition fee loan, but if you come from a household that earns below a certain income, you’ll also get a student living loan and possibly a student grant too, the latter of which you won’t need to pay back.
- If you’re under 25 and have no contact with your parents or support yourself, you may be able to apply for funding as an ‘estranged student’. More details about this can be found on the gov.uk website.
- If you achieve above-average grades and come from a lower-income household, you university may offer additional funding in the form of a bursary or scholarship. This may be granted automatically but if you think you’re eligible, be sure to apply in advance or (if you’re already studying) get in touch with your university’s finance office directly.
- Other bursaries for specific courses, such as arts, dance and media-related courses, can be available from local arts funds. Talk to your university or student union to see what’s available locally to you.
- Students with particular circumstances, like those with disabilities or those whose parents died in service, are also eligible for their own additional funding.
- Don’t forget – if you come from a higher income household (usually over £25,000), you probably won’t receive the full amount of student loan available. This is because your parents are expected to contribute to your studies.
If they are not aware of this, it may be worth sitting down with them and having a conversation. Don’t worry about coming off as demanding – this is an assumption made by law.
If you are indeed eligible for extra funding, or will be receiving help from your parents, then think about how you could put this to good financial use.
You could include additional funding as part of your income, and therefore never borrow the full amount of loan you need.
However, it may be worth applying for the maximum amount just in case you need it, That way you can place any additional funding or income into a savings account for the future, or to pay off your student loan after uni (more on this below).
5. Know When (and IF) to Start Paying It Back
Many people assume that the sooner you pay off your student loan, the better. However, this isn’t always true, at least not for those in most circumstances.
As the amount you pay back is based on what you earn after university – NOT on how much you’ve borrowed – student loan debt has very different rules to other types of debt.
The truth is that paying back your student loan too early may actually harm you in the long-term, not help you.
Here’s how to know when (and if!) to start paying off your student debt.
If you have a starting wage of over £35,000
You will be expected to make monthly repayments on your student loan once you start earning £21,000 or above. These will be deducted automatically from your wage, along with tax and national insurance.
However, you can also make voluntary payments, which can help you pay off your student loan faster.
If yours is an extremely higher end career with a starting wage of £35,000 or more (with the likelihood of pay rises in the future), then making voluntary payments where possible is probably a much better decision.
This is because when starting on such a high salary, you are likely to clear your loan (and interest) within the given 30 year period with auto repayments. This means you’d end up paying a larger amount in the long term than if you’d have simply paid off your loan sooner, and avoided the accumulation of interest.
If you are indeed a high earner, then repaying your student loan voluntarily will best be done in one large lump sum (if you’re able). This again will help to significantly reduce the final amount you owe.
However, these tips only apply to a small percent of graduates who are earning a certain amount.
For most people, paying back their student loan voluntarily won’t be the best thing (see below).
If your starting wage is £30,000 or under
If you’re a low to middle-income graduate earner, then paying back off your student debts early isn’t likely to help you.
In fact you could actually lose money by making those voluntary payments.
Here are a couple of things to remember about student loans:
- 1. Rather than a loan, they are more like an extra ‘tax’. You only pay it back after you earn enough, and the amount you pay will be PROPORTIONATE to your financial success after uni
Therefore, if you don’t earn, you don’t pay. The system was designed this way to be fair.
- 2. All student loan debt is wiped after 30 years. This means you only pay off what is proportionate to your salary during those years, and nothing after. It doesn’t go on your credit record, and you cannot lose your home like with a mortgage.
If, like the majority of students, you’re likely to earn £30,000 or less when you start work, then it is likely you will NEVER pay off your full student debt during those 30 years. And this is without interest.
Many students may panic at the thought of paying interest rates of 6%, which is what the government has announced it could rise to.
But the truth is that unless you’re a very high earner, as described earlier, it is unlikely this interest will ever even be added, because most students won’t finish paying off their tuition fees after 30 years – let alone their maintenance loan.
Even if you or your parents have been saving, and the money is just lying around, we still wouldn’t recommend using it to pay off your debt, because that money could be better used elsewhere – for a house, or living costs.
(If this is the case, we recommend you place the cash into a Top Cash ISA or savings account, until after graduation, when your earnings will be clearer.)
A good way to illustrate this is to use an example from MSE’s Martin Lewis.
A student could pay back their fees in full after graduation, but then never earn over the minimum threshold of £21,000. In this scenario, they would lose up to £27,650.
Another possible scenario would be paying the fees, and ending up with the average graduate income – thus losing up to £30,000.
This is because monthly repayments are based solely on earnings, not on what you owe. So it does not matter how much is borrowed – the maximum repayments remain the same,
For more information on deciding when to pay off your student debt, take a look at Money Saving Expert’s handy guide.
You can also have a play around with the Student Finance Calculator to see how much you could lose or gain by repaying early, all dependent on how much you earn.