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Personal student and graduate loans

Personal student and graduate loans

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Last updated: 14 October 2021

Playing on every student and recent graduate’s mind is the debt that comes with education. Most students will pay for tuition and maintenance through a government student loan scheme. Some may decide to pay for everything with a personal loan, which can be risky because of the irregular nature of a student’s income. Even if you do have a regular income, a loan can end up being more expensive in the long run. Recent graduates often turn to loans for the transition into the workplace, which again comes with its own risks of accumulating debt. This guide will take you through the advantages and disadvantages of both and show you the alternatives available.

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What are government loans?

When going to university, there are two types of loan that you can receive from the government. One is for tuition, specifically paying off the £9,250 a year in fees. The other is a maintenance loan for general living costs, and how much you receive depends on your family’s financial situation. The benefits of a Government loan is that you do not have to pay them back until you earn over £25,750 a year, (depending on your plan) after which you will pay 9% of anything you earn over £21,000. So, if you are earning £26,000 you will be paying back £37.50 a month. The key for government student loans is that they are specifically used for financing your life at university.

What are personal student loans?

Some will choose to get a personal student loan instead of a government loan to pay for their university. This would be taken out from a loan provider that can be used for anything you wish. Although flexible, these loans will have to be repaid monthly from the time you take it out and therefore should not be taken if you can’t afford to start paying it back straight away, a situation most students would find themselves in. However, there are specialised loans for tuition fees that offer repayment ‘holidays’, essentially lowering the loan repayments whilst you are still in study.

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Advantages of personal student loans

  • More flexible, allowing you to choose what to spend your money on.
  • Available to students who aren’t doing their first degree or are studying at a private university.

Disadvantages of personal student loans

  • They are unsecured loans, so may be difficult for a student to be able to get one if they do not have an excellent credit score.
  • Personal Student Loans are very risky for a student with no fixed income.
  • Most Government loans have a 30-year repayment period before they’re written off (dependent on your plan), with many graduates finding that they don’t fully pay it back in this period of time because of their low salary. In which case it just becomes a 9% tax, which would be much cheaper than an unsecured loan.

Why would I need a graduate loan?

Quite simply, a graduate loan is a loan available to students who are making the transition from university to the working world. You will get a lump sum that will often be for a preferential rate to make them more affordable for graduates. They can usually be used for whatever you would like, whether that be to pursue a postgraduate degree, or register a business.

Alternatives to graduate loans

Although graduate loans usually have a relatively low interest rate, it’s important to compare other types of loans such as peer-to-peer lending, so that you can make sure you are getting the best rate.

Peer-to-peer loans

Peer-to-peer loans are a new form of online lending that work outside of the traditional financial institutions. Lending in this way is done through a variety of websites which match up people or businesses to those seeking to borrow money. They can be useful for those who have been refused a personal loan, but your credit history will still be checked and can be refused. The risks of peer-to-peer lending lies in the fact it’s a very new business model that could fail. Uncertainty around Brexit will also play a massive part in the success or failure of peer-to-peer lending.

Authorised overdrafts

Graduate Current Accounts will often give a multiple year period after graduation where you can keep your limited fee-free overdraft. It’s important to distinguish between an authorised and unauthorised overdraft. Authorised overdrafts are where you agree with your bank how much you will be overdrawn, and they will charge you a fee for this. Unauthorised overdrafts are when you go over the pre-arranged limit and will mean you are charged much more. These are useful for those who are not looking to borrow large amounts of money as the charges will most likely be less than for a personal loan.

Grants and bursaries

If you intend to use your loan for furthering your education, you might be able to get access to a grant or bursary. Especially for those who are from households with a low income or have been a high achiever academically. These are available either through the institution that you are planning on studying at or from philanthropic organisations.


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Fergus Cole

Author: Fergus Cole

Fergus is a journalist specialising in the personal finance, energy and broadband sectors. He also has a passion for travel and adventure so tries to make the most of this in any spare time he gets.

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