If there’s one thing we’ve learnt since leaving university, it’s that student loans are really really confusing and too many of us have no idea how the repayment side of things actually works.
For most of us, those student loans are what made higher education actually attainable. Albeit I was one of the lucky ones to enrol before the £9000 per year tuition fees happened, but I can’t have been the first and am wasn’t the last person who, on signing that contract at the tender age of 17, assumed that the process would be straight forward because it was a government loan rather than a private one.
But the latest in 2016’s string of kick-in-the-teeth student loan revelations tells us that thanks to an increased interest rate of 4.6% which is due to kick-in in September, some graduates could end up paying more than £100,000 (so, double what they’d have borrowed) by the time they clear their debt.
Analyst LEBC did the maths and found that if the interest rate stays at 4.6%, a graduate who borrowed the maximum amount of $51,300 while doing a three-year course outside of London would repay a total of £105,145 over 27 and a half years, The Sunday Times reported. This is providing they have a starting salary of £40,000 which rises to £67,000 after 30 years, which feels pretty unachievable all on its own.
According to Candid Financial Advice, you’d need to earn at least £51,000 to actually start repaying the debt instead of just paying the interest. Founder Justin Modray said ‘If you earn less than this, the repayments will not be enough to reduce your overall debt’, which is unsettling to say the least, especially when you consider the fact that the average wage in Britain is actually £26, 500.
The 4.6% interest rate is based on the retail prices index (RPI, which is a measure of inflation. No, I didn’t know that either) and starts to accumulate as soon as you take your student loan out. Another fun fact: the rate is apparently higher than for other types of finance like mortgages.
Thrown in amongst earlier news that some universities will be allowed to raise their annual tuition feesand last year’s announcement that the repayment threshold for student loans would be freezing at £21,000 rather than increasing with earnings, to also find out just how much new grads could face having to repay isn’t a pleasant reality to face, to say the least.
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Follow Jazmin on Twitter @JazKopotsha
This article originally appeared on The Debrief.