You've finished school. Now how do you pay for it?

By Emma Lunn

With this year's crop of freshers subject to higher tuition fees, they're poised to leave university with more debt than their predecessors. According to estimates from the independent university guide Push, the average debt of a British student who started university this autumn will be around £53,400 upon graduation. That's roughly twice the debt load of students who started last year.

So how are new graduates supposed to pay for all that while they're first getting their bearings in the job market? Here are some of the rules that govern student debt -- and some tips for managing it.

Getting loans and paying them off
New students can get a Tuition Fee Loan each year to cover the cost of tuition fees, which starting this year, can cost up to £9,000 per year. Students living away from home and studying in London can also apply for a Maintenance Loan of up to £7,675 per year to cover living costs.

Add up all that borrowed money over several years in school, and it's a hefty sum. university-debt

The good news is graduates don't have to start paying off their student debts until they are earning £21,000 a year. Graduates then are required to pay back 9% of everything they earn over £21,000. After 30 years, any outstanding debts are written off.

However, the earnings threshold of £21,000 applies only to students who started their course in 2012 or later. For those who started their course earlier, repayments kick in when they earn £15,795 a year. Again, graduates will have to repay 9% of everything earned above the threshold.

Expect the earnings threshold to go up each year in line with inflation (the retail prices index).

If you're employed, your employer will calculate your repayment and take it off your salary every month with your tax. This will be shown on your pay slip. If you're self-employed, you will need to arrange your own payments.

Will student loans affect my credit rating?
Some graduates may be concerned that student loans will show on their credit files and make it more difficult to borrow money for a vehicle or mortgage. However, any student loan granted since 1998 will not show up on a credit record or affect the individual's ability to borrow money. The only exception is if you have a County Court Judgement (CCJ) relating to the debt.

Although student loans won't affect your ability to get credit post-university, other types of borrowing you used during  your studies (such as overdrafts and credit cards) will affect your credit rating if you carry debt.

Interest-free overdrafts are a common feature on student bank accounts -- they help banks entice students and keep them after graduation, says Paul Crayston, spokesman for National Debtline. Just don't lean on your overdraft too heavily.

"Students will find interest-free overdrafts the cheapest and most flexible way to borrow money whilst studying," Crayston says. "However, it is important to be aware of the risk of not being able to repay the money after graduation."

Some students may also have credit cards debt upon graduation (if not before graduation). It's especially important to prioritise these, as they are likely to have a higher interest rate than other debts. If you can't afford to pay the balance, make at least the minimum repayment each month so as not to end up with a red flag on your credit report.

Your post-grad budget
If paying for living expenses (and fun) left you with some high post-university balances, use graduation and the beginning of your adult life as a reason to reorganize your finances. New graduates struggling with debt should sit down and complete a budget sheet, detailing what money they have coming in each month, what their essential expenses are and what money they have left over to pay toward any debts. Once you've reached the earnings threshold for repayment on student loans, you'll have no choice but to make those payments -- but it may be possible to negotiate with other creditors.

"A budget plan will give graduates a fair idea of what to do next, whether that be simply cutting back on spending, or negotiating a lower monthly repayment plan with a creditor, or going cap in hand to the bank of Mum and Dad," Crayston says. "A debt adviser can talk any graduates through this process and give them advice on how to proceed."

See related:  New uni students face greater financial struggles, The 10 credit card commandments for students

Published: 18 October 2012