Student loan: any idea how long it will take you to repay it?

Posted on October 27, 2011 by b4iapply

Most students will take a student loan in order to finance the increased tuition fees  of up to £9K per year (from 2012/13) for their studies. Any idea how long it will take you to repay your loan? It will all depend on your career prospects.

Let’s have an example. If you plan to study in London, the total costs for a 3-year degree will be £50K approx.

  • Tuition fees: £9k* 3 years= £27K
  • Living costs: £7,667 (average per year)* 3 years= £23K

Let’s assume that you will take a £5oK loan approx which is the maximum amount you can.

If the subject you study is in an area that will provide you:

  • a high earning career (starting salary £30k, final salary £80k), then it will take you almost 18 years to repay it.
  • a medium earning career (starting salary £25k, final salary £50k), then in 30 years you will have repaid 95% of it. The rest will be written off.
  • a low earning career (starting salary £19k, final salary £30K), you will only have paid 36% of your loan in 30 years. The rest will be written off. In other words, this can be considered loosely as a government subsidy.

Check Student Loan Repayment Calculator from the Complete University Guide. Please read the assumptions used. The model is for illustrative purposes only.  You get the message though loud and clear!

Remember: every degree doesn’t provide you with the same career opportunities. Be selective. Make sure what you study will help you to get your dream job. If you are not clear yet, do more research.

The bottom line: Taking a student loan is definitely a big commitment and it is important that you understand what you get into and why.

Korina Karampela is the founder of b4iapply, author of 2 books, consultant and speaker.

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Before you apply: A university degree may affect your financial well-being

Posted on October 23, 2011 by b4iapply

Tuition fees in most of the UK will increase from a max of £3,375 in 2011/12 up to £9,000 from 2012/13. Education is a human right. Higher education though needs to come with a warning: A university degree may significantly affect your financial well-being!

Most students will have to take a student loan in order to finance their studies.

There are some positives about it:

  1. You don’t have to pay anything upfront. You will start repaying the loan from April after graduation at the earliest.
  2. Your payments will be fixed  at 9% of anything you earn above £21K per year e.g. if your annual pre-tax salary is £25k, then you will have to pay £360 per year (9% *(£25K-£21K)). If your salary increases to £50k, then your repayment will be £2,610 per year.
  3. Given that the threshold will be increased to £21k from 2012 from £15k (current system), repayments for students who take a loan with the new system will be £540 less per year than now (9% *(£21K-£15k)).
  4. If for any reason during your career your annual income drops below the £21K threshold, you don’t have to make the payments for this period.
  5. The debt of your loan is written off after 30 years, even if you haven’t managed to pay it all back.

However, you need to be aware of the following:

  1. Due to the increase of tuition fees from 2012, the actual amount of the loan will be much larger.
  2. You’ll be charged interest on your loan from the time you get your first payment until you pay your loan back in full (if you don’t manage to repay it after 30 years, it will be written off). See full details for interest rates: http://www.direct.gov.uk/en/EducationAndLearning/UniversityAndHigherEducation/StudentFinance/DG_10034866
  3. Given that the amount you borrow is much more, the interest is higher and your monthly repayments are less (due to the £21K threshold), it will take you much longer to repay the loan.

It is yet unclear whether they will be penalties for early repayment. Regarding your ability to take a mortgage, you will have more disposable income since repayments will be £540 less per year. On the other hand, since the debt will last for longer, you will have less disposable income later in your career.

Since higher education will come at a significant price from now on, it becomes even more important that you choose a subject that is right for you and that will lead you to a career you love. You really don’t want to end up with a big loan and a job that you don’t enjoy. You want to be able to live your life to the fullest.

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Higher education: do the benefits outweigh the costs?

Posted on October 14, 2011 by b4iapply

I am a firm believer in higher education. You don’t only get an in-depth understanding in a specific field but you also learn many things that will be useful in a work-environment; you learn to think critically, to present your arguments in a structured way, to meet deadlines, to work in teams, to interact with people from various social and cultural backgrounds.

However, these benefits come at a price and with the expected increase in tuition fees from 2012, I can even say that they will come at a really high price. So, before you apply, you need to do your due-diligence and you need to decide whether the benefits you get outweigh the costs.

The situation reminds me of property investment. My father used to say ‘Invest in property, it never loses its value.’ Recent times though have shown that this statement is not entirely true. Many have seen the value of their property plummeted and they are stuck with it.

Areas to consider when you invest in property:

  • your expectations (e.g. do you want to get a good rental income or do you expect its value to appreciate and then sell it?)
  •  the potential of the property you buy (e.g. is it in up-and-coming area?)
  • the financial considerations (e.g. can you afford the mortgage payments?)

Similar thinking process for higher education is needed.

Consider carefully:

  • what you want to achieve with your degree (e.g. do you want to improve your career prospects or are you simply interested in learning about a specific subject?)
  • what to study  (e.g. have you chosen to study in an up-and-coming field or do you want to do a degree in an area that is already saturated?)
  • what the financial considerations are (e.g. what salary do you expect to get after graduation? If you plan to take a tuition fee loan, have you checked the small print?)

Higher education has many benefits and these benefits come at a price.  As with any other investment, you need to do your due-diligence before you make the decision whether higher education is for you or not. And remember, you don’t necessarily need to have a degree in order to become successful. Think of Steve Jobs and Bill Gates.

Follow me on Twitter @b4iapply

Korina Karampela is the founder of b4iapply, author of 2 books, consultant and speaker.

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Before you apply: decide with the end in mind!

Posted on October 10, 2011 by b4iapply

If you switch on the TV or check the news online, you will find out that unemployment in the UK is currently 7.9%. Graduate unemployment has risen to 20% (Office for National Statistics). In other words, one in five UK university graduates who entered the labor market failed to find a job. This data is shocking!

Now add to the equation that tuition fees will almost triple from next academic year (2012). This means that most of you will need 20-25 years to repay this debt! And when you  manage to do it, you will have to start paying for your mortgage.

The conclusion is clear. Just having a degree is not enough anymore. You need to get the right degree. It is very difficult of course to predict how the job market will be in 20 years. However, the more time you invest in researching what subject to study, the better equipped you will be to face the reality.

Don’t leave your future to chance. Luck will be needed anyway. Consider carefully the following:

  • what you enjoy doing
  • what you are good at
  • what the entry requirements are
  • what environment you want to work in
  • what type of profession you want to do after graduation
  • what your financial expectations are

Make sure you research a lot before you make the decision. Speak to your teachers, to your parents (unavoidable and advisable), to the friends of your parents, to anybody you think has an interesting job. Read books, read blogs. Ask questions about the good, the bad and the ugly of each profession! It is one thing to study agriculture sciences and another thing to work in a farm (I am talking from experience). Then, put all the info together and decide what to study with the end in mind! It is critical to link education with career.

Korina Karampela is the founder of b4iapply, author of 2 books, consultant and speaker.

Posted in b4iapply to college, b4iapply to uni, Link education with career | Tagged , , , | 1 Comment