Repayment of Government Loans
Repayment options for your government student loans will begin in April after leaving your programme, which is also the start of the new financial year. The payments will be 9% of the student earnings over £1250 per month (or £15,000 yearly). Repayment of greater amounts will help the student pay the loan faster. Additionally, the students earning a greater income will pay their loan off more quickly because their payments per month will be higher.
The interest rate charged to student loans changes once per year, and the rate applies from 1 September to 31 August the following year. The interest rate correlates directly to the rate of inflation, along with the Retail Prices Index. The amount of money the student repays will be more or less the same as the amount borrowed when calculating inflation. Government student loans are not intended to make profit. The interest rate is currently 3.8 per cent.
Student Loans Company is the public-sector organisation that is responsible for collecting the repayments of government student loans. The student must keep this organisation up to date with any address or telephone number changes. Also, the student must contact this organisation if any changes need to be made to the repayment agreement with respect to deferment.
Deferment can be entered if the student drops below the income threshold of £2,161 per calendar month (equivalent to £25,936 per year). The student is also automatically in deferment during their programme. In February before completing their programme, the student will receive a letter alerting them that repayment will begin in April. At this point, the student is eligible for deferment until obtaining employment earning the student at least £15,000 per calendar year.
There is no time limit for the grace period of the student between completion of their programme and repayment of student loans. The grace period is based solely on an income threshold. Deferment will last 12 months, and interest will be applied to any loan in deferment. Additionally, the student will need to reapply each calendar year if their situation warrants continued deferment of student loans.
Repayment of Private Loans
The terms of private loan repayment vary between the different lending institutions. Most repayment will begin immediately after entering into the credit agreement. These loans are based on the credit history of the applicant. That being said, the repayment will directly affect credit history as well.
Since the loans are based on credit history, the prime plus APR will be affected by any positive or negative credit. Those with stronger credit history will be more likely to get a lower APR on the loan. This might be a reason to consider having a co-signer for your private student loan. The term of the loan is also determined at the entrance into the credit agreement, compared to government loans for which the payoff date is determinate on income. Depending on the amount borrowed, loan terms could range from 3 years to 5 years, or even 10 years.
Because the loan is from a private institution, payments must be made each month. There is no loan deferment or forbearance, and not making payments will negatively affect the loan applicant’s credit. Additionally, not making loan payments can result in legal action and the involvement of debt collection services. Also, missing even one payment could cause the lender to increase the APR on the loan, causing the borrower to pay a greater amount of interest on the overall balance of the loan. It is also common for late payment penalties to be charged to those late on repayment.