Student Financial Health: Navigating Loans And Credit for United Kingdom Residents

Val Watson
Authored by Val Watson
Posted Friday, July 5, 2024 - 1:51pm

The financial burden of higher education in the UK has become a challenge for students. Tuition fees have steadily risen over the past decade, with the average cost for full-time undergraduate students in England reaching £9,250 per year in the 2023/24 academic year. 

This, coupled with the rising cost of living—a recent survey by Save the Student found that 64% of students struggle with accommodation costs alone—creates a considerable financial strain.

Financial literacy plays a huge role in coping with such challenges. That’s why understanding how to manage money effectively can help students make informed decisions about budgeting, borrowing, and spending.

However, crediting some money and UK during this inflation can be a burden. You can’t deny how loans and credits can help to manage the financial gap and facilitate access to education, but their irresponsible use can lead to debt burdens and negatively impact credit scores. Read on as we will help you strategize your loans and credits responsibly.

The Student Loans In The UK

Do you know that there are two main types of student loans offered by the UK government? The Tuition Fee Loans and the Maintenance Loans. These two loan types are more than enough to manage the cost of higher education.

The Tuition Fee Loan

This loan covers the tuition fees charged by your university or college. The amount available depends on the institution and your course. The loan is paid directly to the educational institution, relieving you of the upfront financial burden.

Eligibility for a Tuition Fee Loan is based on your residency status, course type, and nationality. Generally, UK and EU citizens residing in the UK who are enrolled in a full-time undergraduate or postgraduate course at a recognized institution are eligible.

The Maintenance Loan

This loan helps with living costs such as rent, food, travel, and course materials. The amount awarded depends on your household income, where you live while studying, and your dependency status.

Both Tuition Fee Loans and Maintenance Loans are income-contingency loans, meaning you typically don't start repaying them until your income exceeds a certain threshold, currently £25,000 per year as of April 2024.

Repayments are taken automatically from your salary through the Pay As You Earn (PAYE) system. The interest rate charged on student loans is linked to inflation and can vary depending on your repayment plan.

It's important to note that student loans do appear on your credit report, but they are not typically viewed negatively by lenders as long as you are making repayments on time.

However, large outstanding student loan balances, especially when combined with other debts, could potentially affect your ability to secure credit cards, mortgages, or other loans in the future.

How To Build Credit As A Student?

In the UK, credit scores play a vital role in determining your financial well-being. These scores, generated by credit reference agencies like CashCompare, are numerical representations of your creditworthiness based on your past borrowing and repayment behavior.

Usually, lenders use credit scores to assess the risk of lending you money. A higher score indicates a lower risk of defaulting on repayments, potentially leading to better interest rates and easier access to credit products such as loans, mortgages, and even mobile phone contracts.

The Benefits of Good Credit

For students, establishing good credit early can be particularly advantageous because a strong credit history makes you a more attractive borrower to lenders, increasing your chances of being approved for loans like mortgages, car loans, and credit cards in the future. Here are some more benefits of it:

●       Good credit scores qualify you for lower interest rates on loans, saving you significant amounts of money over the long term.

●       A healthy credit score demonstrates your financial responsibility and improves your overall financial standing. This can be beneficial when applying for rentals, insurance plans, or even certain jobs.

Responsible Credit Practices for Students

If you want to build good credit, you must manage any credit products you utilize responsibly. For example, if you're new to credit, consider a student credit card with a low limit. Use it for small, regular purchases and pay the balance in full each month to avoid accruing interest.

Or, you can keep credit card balances below 30% of the limit, which improves your credit utilization ratio, a significant factor in credit score calculations.

Above all, keep this in mind: if you miss credit card or loan repayments, your credit score will be negatively impacted. Set up automatic payments to ensure you never miss a due date.

You Need To Compare Loan Options

Before you take out any student loan, you need to shop around and compare the best loan deals. As a matter of fact, student loans are a government-backed option, but there are private lenders that also offer various personal loans that can help the students to bridge the financial gap.

Students do take help from these lenders, and if you are considering this option, you need to know that not every lender you come across will be legitimate. So, you have to be very diligent when choosing any of them.

A recent report by Fair4All Finance suggests over 3 million people in Great Britain may have borrowed from unlicensed or unauthorized money lenders in the last three years.

These "loan sharks" often charge exorbitant interest rates, employ aggressive tactics, and can trap borrowers in a cycle of debt. That’s why there are various tools like CashCompare that serve as a resource for students getting the best loan deal.

This comparison tool aggregates loan options from various reputable lenders in the UK. By entering basic information like loan amount and repayment term, CashCompare displays a side-by-side comparison of available loans, highlighting essential factors such as:

●       Interest Rates or Anual Percentage Rates

●       Repayment terms or schedules

●       Eligibility requirements or criteria

The End

If you are living alongside student loans and credit, you need to learn the art of money management. By now you should be creating a budget and tracking your income from loans, grants, part-time jobs, and any other sources.

You have to list down all your expenses by prioritizing essentials like rent, food, and utilities. You can now, easily, allocate remaining funds towards course materials, transportation, and entertainment. 

Minimizing student debt can ease your financial burden and you can explore scholarships and grants offered by universities, government agencies, and private organizations.



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