Applications for student funding are opening soon in the UK and over a million students are expected to apply. However, many students are unaware of recent changes in student loan repayment that could increase the amount they repay! Here’s everything you need to know about recent changes to student loans.
How will student loan repayments evolve in 2022?
The government recently announced a series of changes to student loan repayment that may affect how much you have to repay. A key change is that the the reimbursement threshold will be frozen at its current rate from April 2022. This means that the minimum wage you must earn before repaying your loan will remain the same despite inflation.
Usually, the repayment threshold increases with rising wages and inflation. This is done to reflect the rising cost of living and support low-income graduates. Prior to the changes, the threshold was expected to increase by 4.6% this year. However, the freeze means that more people will start having to repay their loans sooner, which could tighten financial pressure!
Who will be affected by the changes to student loans?
The proposed changes will affect Plan 2 and Plan 3 student loans. Plan 2 student loans are undergraduate loans originated on or after September 1, 2012. The current Plan 2 threshold is £27,295. Those on a Plan 2 loan will have to repay 9% of anything they earn over the threshold.
If you are an EU citizen studying in the UK, Plan 2 loans are those taken on or after September 1, 2021.
The threshold for Plan 3 loans will also be frozen at its current rate of £21,000 from April 2022. Plan 3 loans are those taken out by postgraduate students on or after August 1, 2016.
Will freezing the threshold increase the amount you repay?
Freezing the repayment threshold means more graduates will have to repay their loans at an earlier date! This is due to rising wages.
As a result, those who earn a pay rise to an annual salary of £30,000 will have to repay an additional £113 a year from April! The figure will be even higher for high earners and could tighten financial pressure.
It is important to note that as salaries increase, an increasing number of low-income graduates will reach their threshold and will have to start repaying their loans. This could become difficult as inflation continues to soar in the UK!
How can you fund college without a student loan?
The financial burden of a student loan can be daunting for some graduates. However, it is possible to go to university without taking out a loan. Here are three ideas for students who want to avoid debt!
1. Take the time to save!
Unlike school or college, there is no age limit on when you can study at university. Therefore, it may be a good idea to take a year off (or two) and use that time to build up your savings! It’s a great way to finance your education without taking out a student loan. Many students will use gap years to take entry-level jobs or start their own scramble to minimize the amount they need to borrow.
Additionally, you can invest your savings in a high-interest savings account or ISA stocks and shares to maximize your funds for college.
2. Work while you study
You don’t need to take a gap year to pay for college. It is possible to have a part-time job while you study and earn enough to cover a large part of your expenses.
Part-time college courses are popular with people who want to earn a living while pursuing their education. These courses take longer to complete, but free up more time during the week for you to work on. Although they take longer, part-time university courses are at no extra cost!
3. Generate a passive income stream
If you’re worried that part-time work will interfere with your studies, generating a passive income stream might be the best option for you! Passive income is a source of income that requires little to no work, meaning it can be easily maintained alongside a college education.
Most passive income streams take time to set up. As a result, it can be a good option for graduate students who might start creating passive income during their undergraduate courses. Great sources of passive income include owning dividend stocks, affiliate marketing, blogging, and drop shipping. You can start each of them with a relatively low deposit and minimal experience.
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