Throughout our journeys as high school students, we’re told that every test, every course, every mark, every decision we make is crucial – because it will determine which university we go to and which career path we take.
But studying at university is expensive. Although the UK has capped annual tuition fees at £9,250 for TEF universities, that’s still a lot of money, and the loans to cover it come with interest.
Concerns about student debt only grow in light of reports that almost half of UK graduates aren’t working in graduate roles. With trusted household names like the BBC and The Guardian posting headlines like “Too many students left with debts for ‘too little payback’, it’s no wonder prospective students are so fearful of university debt.
(It also doesn’t help that only 15% of students think their degree is worth what they paid for it.)
A more optimistic perspective on student debt
These findings may appear bleak at first, but there is a big silver lining in this seemingly dark cloud. Remember, university isn’t just a ticket into the career you want. The “uni experience” is just as valuable for your personal development as your education and skills are for your professional development.
University is a time to figure out what you want from the adult life waiting for you after your graduation ceremony. It’s a time to make new friends, learn about new cultures, try new things, and see new places. It’s a time when you’re allowed to make mistakes and learn from them.
University also offers students opportunities that employers often don’t. For starters, you probably won’t have the chance to take a whole semester to study abroad in a new country. (And we can almost guarantee that work parties won’t be nearly as fun as Fresher’s Week.)
Humans are social creatures. We don’t just want close friends – we need intimate relationships to survive and thrive. University provides the optimal space for students to make lifelong friends and build a professional network with their lecturers and potential employers.
We are also nomadic and love to explore. We are not all designed to stay in the same place. University provides the perfect window to travel and immerse ourselves in a different country and culture.
After you graduate, secure that full-time job, and perhaps start your own family, chances are you won’t have the time or energy to go globetrotting or attend parties in search of new friends. (Unless you’re one of the lucky ones, that is!)
University provides unique opportunities for both personal and professional growth, making it well worth the financial investment.
Examining concerns about student debt & employability
Let’s go back to employability for a moment, because it is the key concern when it comes to student debt. If we’re being realistic, most employers these days require job applicants to have a Bachelor’s degree to even be considered for a position.
Your undergraduate degree is increasingly becoming less of a differentiator and more of a necessity. Moreover, to get ahead in earnings, you may need to consider a postgraduate degree.
Therefore it’s extremely important for students to do their homework when choosing their university course. Even if you don’t finish your course or change to a different degree after the first year, you are still required to pay back the amount you borrowed. For your own sake, it’s important to research your prospective course and university thoroughly to ensure this is the path you want to take.
Repaying student debt
The good news is the UK has a minimum income threshold which graduates must meet before they even need to start paying their loans back.
The amount you pay back will depend on which payment plan you’re on and whether you earn your salary on a weekly or monthly basis. Most current university students and recent graduates from England or Wales will be on Plan 2, since their course started after 1 September 2012.
Here’s how repayment works. If you earn more than the weekly or monthly repayment threshold – currently £480 a week or £2,083 per month – you’re required to pay 9% of the amount you earn over that threshold. The annual threshold for Plan 2 loan borrowers is £25,000. In April 2019, that threshold will increase to £25,725. The national average income in the UK for full-time employees is roughly £26,000 per year.
Below, we’ll break down the repayment amounts for Plan 2 borrowers using the example salary amounts provided on the gov.uk website.
Let’s say you make £600 per week and are paid weekly:
£600 – £480 = £120 over the threshold
£120 x .09 = £10 per week repayment
If you make £28,800 per year and are paid monthly, here’s a breakdown of your student debt monthly repayment amount:
£28,800 / 12 months = £2,400
£2,400 – £2,083 = £317 over the threshold
£317 x .09 = £28 per month repayment
When you look at it this way, repaying your university debt seems manageable. Plus, your repayment amount will typically come out of your salary automatically, so you may not even notice the payments going out.
However, these calculations don’t include another key concern about student debt: interest. Unless you’re making £41,000 a year or more, your interest rate is currently 6.3%.
This isn’t ideal for graduates, as it could tack on an estimated £18,000 to their university debt bill over the course of 30 years. The good news is, the movement to reduce tuition fees, restore maintenance grants, and perhaps even scrap fees completely is growing.
Graduates who are struggling to pay off their student debt can benefit from repayment and loan forgiveness plans to set a repayment amount which is feasible. And if you still don’t manage to pay off your student debt after 30 years, the remaining amount is forgiven completely.
Wrapping up: a fresh view on student debt
Although there are a tonne of scary headlines about student debt, going to university is still one of the best investments you can make towards your future. And let’s be honest: your time at university will do a whole lot more for your personal and professional development than your time spent binge-watching your favorite shows.
Interestingly, the majority of today’s students aren’t expected to pay off all their debt. While this shouldn’t be seen as a free pass not to pay, it is worrying in a much larger sense: it means that students aren’t making enough money after graduation to repay what they owe. To quote the BBC’s report, “[In the UK] opportunities for better-paid employment tend to be more limited.”
It is hard to say what will happen with student debt and tuition fees in the next ten years, let alone the next thirty. The good news is, change is coming. A system in which student debt repayments are projected to make up roughly 11% of GDP by 2040 is not sustainable for students or the government. Universities have also contributed more than £860m to initiatives which would reduce the financial burden of university for disadvantaged students.
Thinking about going to university? Want to know how you can maximise your experience? Snag yourself a copy of International Student Pathfinder: The Essential Guide on UK Universities and Careers.
What is your experience with student debt? Share your thoughts and experience with us in the comments below!
