Clearing 2016: Demystifying student debt

8 August 2016

Robert Fowler, Student Money Advice and Rights Team (SMART) Co-ordinator at the University of Derby, offers advice on money and demystifies student debt worries. 

How will student debt affect graduates?

Student debt will not have a significant impact on graduates. Even if a student owes £10,000 or £100,000, the monthly repayments are the same, although the higher the loan the longer it will take to pay off.

After 30 years all outstanding amounts are written off so many graduates will only ever repay a small proportion of what they borrowed. Some will repay it all, some will repay none, most will repay some. 

Of the numerous historical repayment terms (from 1992 onwards), the current system (2012) offers the lowest monthly repayments. Many graduates will pay more for gym memberships and mobile phone contracts than they will on monthly student loan repayments.

A £10 note

Will it make them more willing to take on debt in the future?

Debt is an unavoidable fact of life for most people these days. But managed properly, debt can allow you to access things that you couldn’t otherwise afford to pay for upfront (i.e. mortgages, car loans etc).

Managing your student funding, accommodation costs, general living costs and an overdraft for three or four years of study offers a good grounding into future money management and debt awareness.

Having no experience of money management is a greater risk to future debt problems.

Does student debt make it harder to buy a first home? Or is it affordable, given the extra earning potential.

Student Loan ‘debt’ doesn’t show on your credit file so the amount you owe doesn’t directly impact on your ability to get a mortgage. Lenders will look at your ability to repay the mortgage during their assessment. The more you earn, the better your ability to afford repayments.

It often helps to think of your student loan ‘debt’ and repayments as a Graduate Tax. The more you earn, the more you will repay (similar to income tax).