Ignore newspaper headlines about students leaving university with £50,000 of debt. That’s a mostly meaningless figure. It’ll actually cost those who earn well after uni far more, and those who don’t earn as much far less or nowt.
This special guide written by me shows the 20+ key facts every potential student, parent and grandparent should know.
20+ student loans mythbusting tips, including...
Before we start, I'd just like to say:
For 20 years we've educated our youth into debt when they go to university, but never about debt - that must change
For this reason, even though I'm no fan of the changes, in 2011 I agreed to head up a student finance taskforce working with the NUS, universities and colleges to try to ensure we bust the myths and misunderstandings that have resulted from so much political spittle flying.
What counts is that no student is wrongly put off going to university thinking they can't afford it. Some may rightly be put off, but unless you understand the true cost, how can you decide?
Trebling of tuition fees doesn't necessarily mean trebling of costs
All universities are now allowed to charge up to £6,000 a year and many up to £9,000 (nearly three times 2011's fees), providing they make extra provisions for bursaries for poorer students. The max for part-timers is £6,750 a year.
You might think universities would be cock-a-hoop over this, as they'd be getting more cash, but their direct funding has actually been radically cut by the Government, sometimes by more than the extra fees received - so it's far from clear-cut.
On the back of this, you'll no doubt have read headlines like "students to be £50,000 in debt when they leave". Yet the big confusion with tuition fees is that everyone talks about the price tag and the amount you borrow, whereas what really counts is how much you will need to repay.
And that, as I'll explain in more depth later, depends far more on how much you earn once you graduate or leave university.
Those who earn a lot will repay a lot. Those who don't gain too much financially from going to university will repay little or nothing. Some have even called this 'no win, no fee', although of course, winning at higher education is about far more than just how much you earn afterwards.
The changes ONLY hit first time undergraduates starting after September 2012
The new student finance system only affects those starting their first undergraduate course at university or college in 2012, 2013 or beyond. If you already have a higher education qualification you're unlikely to be able to borrow the money. Included within undergraduate courses are Higher National Diploma/Certificate courses and certain teacher training courses such as PGCE. Those on courses which started before 2012 stick with their existing fees and repayments.
Find out more if you're...
Wanting to study healthcare or medicine (NHS Bursary Scheme)
Medical and healthcare students get support from the NHS Bursary Scheme, where you'll also get an additional NHS grant and maintenance loan from Student Finance England. The amounts and rules are different depending on the course.
Undergraduate medical or dental students on five/six-year courses will have all tuition fees paid in their fifth and final years. Those on four-year courses must contribute £3,465 to their first year fees, then receive £3,465 in years two, three and four as a bursary. Both will then be able to apply for a student loan for the remainder of their fees.
Graduates on the four year accelerated medicine programme will have to fund the £3,465 tuition fee themselves. Eligible students can apply for a loan up to £5,535 to cover the remaining tuition fees.
You must re-apply every year for the NHS bursary, and applications have to be received within six months of the first day of the academic year.
Fees for suitable non-medical courses, eg, physiotherapy, nursing and midwifery, are usually paid directly by the NHS so eligible students will not be required to pay tuition fees.
They will also be eligible for a £1,000 grant, means-tested bursary up to £4,395 (£5,460 in London, £3,351 if living at home, less for courses under 30-weeks each academic year) and a non-means-tested maintenance loan of up to £2,324 (£3,263 London, £1,744 home; all are reduced in final year of study).
You don't need the cash to pay for university
It ISN'T a case of 'pay up or you can't go'. Once your application has been processed, tuition fees are automatically paid by the Student Loan Company. Full-time students only need to start repaying this in the April AFTER graduation (or leaving) at the earliest, no matter how long your course is.
Of course you don't have to take the loan for tuition fees, you could opt to pay it directly. Yet you may be surprised that...
For many, paying tuition fees upfront rather than taking the loan risks leaving them £10,000s WORSE off.
If you are considering paying tuition fees upfront, read the full Beware Paying Tuition Fees Upfront guide, which takes you through the pros and cons.
Muslim students in England aren't excluded either as you'll be able to get alternative student finance acceptable under Sharia law, although this will not be available until 2016 at the earliest. For more information see Sharia-compliant student finance news.
You only repay 9% of everything you earn annually above £21,000 of pre-tax salary once you've left university. Therefore if you've started repaying the loan, but then lose your job or take a pay cut, your repayments drop accordingly.
If you earn £22,000 in a year, what do you repay?
The answer is £90, as twenty two thousand is one grand above the threshold and 9% of £1,000 is £90.
And if you earn £31,000, what do you repay?
£900. Thirty one thousand is £10,000 above the threshold and 9% of that is £900.
"How on earth will my child be able to afford to repay these debts if they get a poorly-paying job?"
This panic question has been thrown at me by many parents - and it's really important to examine it in the light of the required repayments.
Someone on a low wage will be required to repay little or nothing at all. In fact, only higher earners will be shelling out large amounts.
It's important to note that not repaying much because you're just over the threshold isn't being bad. The system is, in reality, a graduate contribution, designed so that, in the main, those who gain the most financially out of university contribute the most.
The £21,000 threshold is set to change
The £21,000 threshold was scheduled to rise in line with average earnings, to start in April 2017. However, the Government is consulting on freezing this threshold for five years - a move which would retrospectively increase the cost of student loans. Martin's pledged to organise a protest if this happens.
However, until this is decided, for ease, we will just refer to it as 'the £21,000 threshold' in the rest of this guide.
Further info on repaying
Technically you repay 9% above £1,750 a month - important if you get bonuses
We’ve stated that you start to repay when you earn £21,000 a year, mainly because most people will go into a salaried job where they earn a set amount each month. However, payments are calculated and taken monthly, so £1,750 is the important figure.
This means that if you earn £1,500 most months, but overtime or bonuses take you over the £1,750 threshold for one month, then the Student Loans Company will take 9% of anything above £1,750 from that month’s paycheck - even if you don't make £21,000 or more during the year.
Similarly, if your income is volatile this could affect you too. Let’s take an extreme example: if you earned £15,000 one month, and nothing for the rest of the year, you’d still pay 9% of everything you earn over the £1,750 threshold that month.
In this extreme case, the student loans company would take just under £2,000 that month, even though your total earnings for the year are £6,000 under the threshold.
If this happens, you can reclaim any 'overpayments' at the end of the financial year - you will need all your payslips to prove your income was under £21,000 during the year.
What counts as additional income for student loan repayment purposes?
If you have additional income of over £2,000 from savings interest, pensions or shares and dividends, then this will also be treated as part of your income for repayment purposes. You'll need to repay 9% of that too via self-assessment.
How are student loans treated for tax purposes?
While the amount you pay is calculated based on your pre-tax income above £21,000, the money is taken after you’ve paid tax. For example...
If you earn £30,000 a year gross (pre-tax) salary, you will repay £810 a year (9% of the £9,000 above £21,000).
Yet you still pay tax on the entire £30,000 income. You don’t get any tax breaks on the fact you’re repaying the student loan.
Do I still have to repay my student loan if I move overseas?
The answer is yes. The student loan has been set up as a contract, not a tax, therefore the fact that you're no longer living in the UK doesn't affect that contract.
The rules state you're still obliged to repay based at 9% of all earnings above (the local equivalent of) £21,000 a year. Not doing so could lead to substantial penalties.
If we ignore the moral obligation to repay the state for the education it provided you, the real question here isn't "do I have to", but "how can they make me?"
This is an issue of enforcement. Certainly if you temporarily leave the UK and come back having missed some payments, expect to be pursued. If you move abroad permanently, never to return, there may be no attempt to pursue you in a foreign court. But there are no guarantees of that.
Some further information on this for current graduates (likely to be similar for future graduates) is available on the Student Loans Company website, though it's a bit sketchy in parts.
How do student loan repayments affect my pension contributions?
Whether student loan repayments are taken from your salary before or after you make a pension contribution depends on how you contribute, and what sort of scheme you're in.
- Defined benefit schemes. If you are in an employer's pension scheme, eg final salary/average salary your repayments will automatically be calculated on your income after pension contributions.
- Defined contribution schemes. If you pay into a personal pension, whether monthly via your company payroll or directly as a lump sum, student loan contributions are worked out using your gross pay (unless you pay into your pension by salary sacrifice).
You can do a self-assessment tax return to have the pension contributions taken into account. But decide if it's worth the hassle of going self-assessment if you don't already. For each £1,000 you pay into your pension (£800 net) each year, you could pay around £90 extra in student loan repayments.
Student Finance 2012 Video Guide
Filmed in front of parents and potential students at University College London in June 2011.
Created by the Independent Taskforce on Student Finance Information, see www.studentfinance2012.com
Feel free to pass to others and embed the video on your own site (sorry about the poor sound for the first minute).
The Facts about Fees: Student Loans 2012
Made by Bournemouth University, Sep 2011 for the Independent Taskforce on Student Finance Information, see www.studentfinance2012.com
Martin explains the changes to student finance
Martin Lewis, Head of the Independent Taskforce on Student Finance Information, explains the key changes to student finance at English universities from September 2012
Listen to Martin explaining the changes on BBC Radio 5 Live's Shelagh Fogarty show. Click on the player below to listen (13:15).
No debt collectors with student loans
Student loans for both post 1998 and post 2012 starters are repaid through the payroll just like income tax. What this means is that once you're working, your employer will deduct the repayments from your salary before you get it. So the amount you receive in your pay packet each month already has it removed.
This means no debt collectors will come chasing as you don't have a choice in the matter and will have paid it automatically.
There are two exceptions to this. One applies to students who took loans before 1998, and who now may have found that if they're behind in their payments that they're being chased by a debt management company. For more information, read Government sells £900m of student loans.
The other exemption to this is for the self-employed (people who work for themselves or are freelance). For more on that see:
How the self-employed repay student loans
You always repay the student loan in the same way as you repay income tax.
For the self-employed, this is done via HMRC's self-assessment scheme. At the end of each tax year, you calculate your earnings and the appropriate amount of tax and loan repayments, and then send it to the Revenue. This also applies if you have additional self-employed earnings on top of employment.
If you fail to pay, you'll be sent a reminder. Ignore that, and in a similar way to failing to repay your taxes, you could end up in court. Some more information is available for graduates on the Student Loans Company website.
As a side note, if you are likely to be self-employed, read my Warning to new freelancers and the self-employed blog.
You stop owing when you've cleared the debt or when 30 years (from the April after graduation) have passed, whichever comes first. If you never get a job earning over the threshold, you'll never repay.
What happens on death or incapacity
The debt is also wiped if you die, so it won't be passed on to your beneficiaries as part of your estate. It's also wiped if you're permanently disabled in such a way that you'll be permanently unfit to work (in such a case, earnings will usually be under the threshold anyway, but this rule's there for rare cases where unearned income is above the threshold to allow the recipient to keep it all).
'Above-inflation' interest will be charged. Don't understand interest rates? Read the Interest Rates Beginners' Guide
For those who started university before 2012, there was no 'real' cost to borrowing money via student loans, as the interest rate was set at the rate of inflation (RPI). So borrow a shopping trolley worth of goods and you'll repay enough to buy the same, even though the actual cash amount may increase (more on this in the Should I Repay My Student Loan? guide).
Yet for those starting after September 2012 that's all changed. The interest is as follows:
Accrues RPI inflation plus 3% on the outstanding balance. This continues until the first April after graduation when it changes to…
After studying, earning under £21,000:
Accrues RPI inflation.
After studying, earning £21,000 - £41,000:
The interest rate will gradually rise from RPI to RPI plus 3% the more you earn (the interest rises 0.00015% for every extra pound you earn or, put another way, if you earn £1,000 more, you accrue 0.15% extra interest).These thresholds are likely to rise with average earnings from 2017.
After studying, earning over £41,000:
Accrues RPI inflation plus 3%.
It's worth noting all the above scenarios assume inflation is positive (prices rising). It's not yet known what would happen in a period of deflation (prices falling).
The rate used is the previous March's RPI inflation rate. March 2014's inflation rate was 2.5% meaning interest charged on new-style student loans in 2014/15 is 5.5%.
More about interest rates if you don't complete the course.
If you start a course in September 2012, regardless of how early you leave, you won't need to make any repayments until April 2016 (the first April after 2012 starters would graduate on a three-year course) as the system isn't being set up until then.
You'll be charged interest of RPI inflation from the April after you leave until April 2016. After that date, interest will be at the same level as everyone else.
Being charged interest isn't the same as needing to repay it
I'm no fan of the fact that students aren't just being charged for their education, they also pay for financing it with above inflation interest.
Yet that's a principled stance. In practical terms for many graduates, especially those who aren't high earners when they leave, they'll never have to repay this interest, so it's meaningless. See my Student loans are interest free for many blog.
Repayments are £330/year LESS than for current graduates
Many people worry that with the much higher levels of student debt, cash will be too tightly squeezed to live on once post-2012 starters graduate.
Yet actually, today's university starters will have MORE cash in their pockets each month than those students who've just graduated.
Graduates who started their course before Sept 2012, repay 9% of everything earned above £17,335. Those starting in 2012 and beyond see that increased to £21,000.
That means those earning above the £21,000 threshold have £368-a-year more in their pockets than now. A chart should help.
|Current system||New 2012 system|
|Earnings||Annual repayment||Monthly pay packet reduction it's equivalent to||Annual repayment||Monthly pay packet reduction it's equivalent to|
For simplicity, we’ve compared new starters with current graduates. While it's likely those repaying under the new system will still have more disposable income in the years following graduation, the gap will be substantially reduced due to the inflation.
Why inflation decreases the difference
Current graduates start repaying their loans when they earn more than £17,335. This threshold is set to rise with the RPI measure of inflation each April, until 2016.
The actual figure used will be the rate of RPI in the March from the prior year, so on 6 April 2012 it rose to £15,795, as March 2011’s inflation was 5.3%. In April 2013 the figure rose to £16,365 (March 2012's RPI was 3.6%).
And in April 2014, this minimum income threshold rose to £16,910, as March 2013's RPI inflation was 3.3%.
You WILL owe money for longer than current graduates and MAY pay a LOT more
The flipside of people repaying less due to the higher £21,000 threshold than current graduates is that it will take much longer to pay off the loan. And this is compounded by the fact the original debt is bigger and the interest rate higher.
This is because under the new system the cost is effectively being spread over a much longer period. Initially, graduates will be able to keep more of their income to spend than now. Though later on when they would've paid off the loan under the current system, they'll have less as they'll still be repaying.
Part-timers can get loans for tuition fees too
Part-time students, often forgotten, make up 40% of all undergraduates. Fees for part-timers also jumped very substantially in 2012, with all universities being able to charge up to £4,500 and some £6,750, provided they offer bursaries.
Monthly repayments are the same, whether fees are £6,000 or £9,000
Whether you choose a course that costs £6,000 or £9,000, you'll repay the same amount each month, as that purely depends on what you earn (9% above £21,000).
In other words, whatever your tuition fees (and maintenance loan) if you earn £22,000, and haven't cleared the debt, you repay £90 a year.
Of course, the more you borrow, the longer you'll be repaying. Yet it's worth noting that, as many people won't finish repaying before the 30 years is up (see key fact 18) unless you're a higher earner, picking a course with higher fees won't actually cost you more.
You can borrow for living costs too, and loan sizes are set to increase
Full-time students aged under 60 at the start of their course can also take a loan to pay for their living costs, eg, food, books, accommodation and travel. They are known as maintenance loans, and are usually paid in three termly instalments direct to the student's bank accounts.
The amount is dictated by two elements:
The guaranteed bit
Up to 65% of the maximum living cost loan will be available to everyone, regardless of their parental income.
The income assessed bit
The amount you can borrow is means-tested, in other words it depends on you or your parents' residual income (pre-tax income minus pensions - see a full definition of residual income).
If income is higher, then you or your parents are expected to fill this financing gap.
Maximum maintenance (living) loan
|Academic year||Living with parents||Living away from home||Living away from home (London)||Living away from home (overseas)|
For 2015 starters, with the lower level of living loans, it's crucial to ensure there is a real focus on budgeting, and the money isn’t spent in the first few weeks of term. Extra funds from parents and part-time jobs will help. Do see Student MoneySaving tips for more on how to make the cash stretch further.
How to apply for student loans & grants
The deadlines depend on which bit of UK you're from (not where you study). Do it in time to ensure (barring problems which sadly do happen) you get the loan by the start of the September term. You can apply after these deadlines, but cash isn't guaranteed to arrive in time for the start of term.
All deadlines to get cash in time for the start of term have now passed for 2015 starters, but you can still apply. In fact, you can even apply up to six or nine months after your course has started.
Under £42,620 income households' students get maintenance grants
In 2015/16 full-time students with residual income under £25,000 get a grant of £3,387. Because it's a grant, not a loan, it never needs repaying (unless you leave your course early, when you may be asked to pay it back). The amount of grant you're entitled to is means tested.
But if you're entitled to a full grant the maximum loan you'll be entitled to is reduced, though by less than the amount of the grant.
So at £25,000 income or less, in 2015/16, a student living away from home (outside London) would get a grant of £3,387 and a maximum loan of £4,047 (not the full £5,740).
Those from households with income between £25,001 and £42,620 get smaller grants, though the maximum loan amount increases to make up for it.
|Support package 2015/16|
|Household income||Non-repayable maintenance grants||Maintenance loans||Total|
|£25,000 or less||£3,387||£4,047||£7,434|
|£62,500 or more||£0||£3,731||£3,731|
|For students living away from home and studying outside London.|
Grants to be scrapped, and larger loans available from 2016/17
While most headlines rant about the size of student loans, we'd protested that living loans actually aren't large enough. With student rents rising and costs increasing, for some, living off these amounts is tight.
However, in the 2015 Summer Budget, the Chancellor addressed this issue, saying that larger maintenance loans would be available to students starting university in 2016. The maximum loan will be £8,200 for students living away from home outside London, £10,702 in London, and £6,904 for those living at home.
The amount new students will get depends on their household income, with 65% of the loan being guaranteed and 35% income-assessed, as currently happens. This means everyone eligible will be entitled to a loan, although only those with a household income of £25,000 or under will be able to get the maximum amount.
But, on the flipside, the Government has also proposed to scrap maintenance grants starting from the 2016/17 academic year. It's still finalising exactly how the loans will be calculated, though, and says more information will be provided in "due course". We'll update this guide as soon as we know more.
As with the current loans system, students will only have to start repaying these maintenance loans after graduating when their earnings exceed £21,000 a year.
When you borrow from a bank for a credit card, loan or mortgage, to evaluate whether they'll make money from you lenders look at three pieces of information – your application form, any previous dealings they've had with you and crucially, the information on your credit reference files (full info: How Credit Ratings Work).
Most normal financial transactions and credit relationships you have are listed on these files - yet student loans are not included (with the exception of students who started university before 1998 under the original loans system and defaulted).
So the only way loan, credit card or mortgage providers know if you've got a student loan is if they choose to ask on application forms. They can do this and it happens, but in general it's only for bigger value transactions such as mortgages.
Tuition fees can impact your ability to get a mortgage, but not as much as people think
I know many parents worry that the much higher level of tuition fees, and subsequent 'debt', will hit their child's ability to get a mortgage after studying.
Of course, having a student loan is worse than not having one when it comes to getting a mortgage. Though going to university often results in earning a higher salary, which usually cancels this out easily.
Student loans don't appear on your credit file, so the impact isn't so much in whether you'll be allowed a mortgage, it's in the "affordability checks" which mortgage brokers have been doing for years, and mortgage lenders were made to do from April 2014 (though in practice, many did them anyway).
Here, they establish what kind of mortgage repayments are sustainable. Of course, as you have lower take-home income with a student loan, that means you'll be assessed as being able to make smaller repayments.
Many believed the new higher tuition fees in 2012 would make it a nightmare for getting a mortgage - this isn't true. In some ways, they are an improvement
If we contrast student loans for those who started in 2012 with to their predecessors from the year before, it's actually swings in roundabouts. If you're a 2012+ starter, you'll have higher disposable income than 1998-2011 starters (you only pay 9% over £21,000, while they pay 9% over £16,910), so mortgages are actually more affordable in the first years after university for new starters.
Yet it means you'll be repaying long after current graduates, so at that point you'll have less disposable income.
Overall, both in my view, and that of mortgage brokers I've discussed it with, it's likely to even out - and it's certainly a negligible issue compared to building a substantial deposit
See the First Time Mortgage Guide.
You can repay early
In the early days, the Government was consulting on penalties to stop people repaying early - but the mass of feedback (including our no to penalties submission) was against - and thankfully it decided to scrap the idea.
Yet this doesn’t mean you should pay off early, just because it's allowed. While in general we’d encourage people to repay their debts as quickly as possible, student loans are one of the rare cases where that will be a bad decision for some people.
This is because, as explained in point 18 below, under the new system many won't fully repay before the debt's wiped after 30 years (use the Student Finance Calc to see). Overpaying each month could actually be peeing in the wind – as the overpayment's not reducing the amount you’d need to pay back at all.
Even if you’ve enough cash to clear the loan in full it may not be worth it as your repayments primarily depend on what you earn, not what you borrowed. It could mean you need to repay less than what you owed. To see how this concept works read the Beware paying Tuition Fees Upfront guide.
Scottish, Welsh and Northern Irish students, including those who decide to study in England, receive their financial support from their "home" devolved administration so it's a matter for those governments to decide how they wish to support their students.
Scottish students studying in Scotland pay no tuition fees. English and Northern Irish students studying there will be charged up to £9,000 per year, as will Scottish students studying in England, Wales and Northern Ireland. Welsh students in Scotland will receive some support from the Welsh Government - see below for details.
More info: Student Awards Agency for Scotland
Northern Irish students studying in Northern Ireland will pay a fixed price of £3,685 in 2014. Those from England or Scotland will be charged up to £9,000 per year, while Welsh students will receive some support from the Welsh Government, as explained below.
More info: Student Finance ni
Tuition fees at Welsh universities follow the English pattern and were increased to £9,000 from 2012. However, the Welsh Government covers the increase for Welsh resident students. They won't have to pay any more than the current cost plus inflation, likely to be £3,685. English, Scottish and Northern Irish students will need to pay the full amount.
More info: Student Finance Wales
Here's a summary of the situation for 2015 starters:
Maximum annual tuition charges
|Where student is studying|
|Where student lives||England||Scotland||Wales||Northern Ireland|
|England||Up to £9k||Up to £9k||Up to £9k||Up to £9k|
|Scotland||Up to £9k||Free||Up to £9k||Up to £9k|
|Wales||Charged up to £9k, but Welsh Govt pays anything above £3,685|
|Northern Ireland||Up to £9k||Up to £9k||Up to £9k||£3,685|
Many people will never pay it all back
By running the numbers on some typical situations using the Student Finance Calculator, it looks likely only those towards the higher end of the income scale will ever repay what they borrowed.
The very highest earners aren't the very highest payers
Throughout this guide, I've written "the more you earn the more you repay", yet a quirk of the system means technically, beyond a certain point, that's not true.
In truth, for the huge majority of people this isn't relevant, so feel free to skip this technical point, but from a political perspective it is worth examining.
This quirk happens because seriously high earners pay off so quickly they have less time to accrue interest. This doesn't mean they pay nothing, they still pay far more than very low earners, but it does mean that very very high earners repay less than high earners.
Try a wee experiment to understand this. Go to the Student Finance Calculator and set it to the maximum tuition fees (£9,000 per year) and typical maintenance loan (£5,740 per year). Now use the salary slider to change the starting salary and (on standard assumptions of inflation and salary growth) you'll see at first the repayments rise. Then, after a starting salary of around £41,000, they start to fall.
The maximum possible loan combining tuition fees and maintenance in 2015 is £17,000 a year; £51,000 over a three-year course.
This is a frightening amount, and indeed many are frightened of it. Yet it's important to not just jump at this figure, but look at it in regards to how much of that you'll actually have to repay.
In fact, when you examine this debt, it's far more like an additional tax than a loan (see my old blog: Student loans aren't a debt for why the language needs to be changed) for the following reasons:
- It's repaid through the income tax system
- You only repay it if you earn over a certain amount
- The amount repaid increases with earnings
- It does not go on credit files
- Debt collectors will not chase for it
- Bigger borrowing doesn't increase repayments
- Many people will continue to repay for the majority of their working life
In many ways it has many of the features of a tax, but one that simply ends once you've repaid what you borrowed, plus interest. (This isn't the first time I've argued this, see my old blog: We Already Have A Graduate Tax.)
So if you examined it as a tax on current thresholds, a typical graduate will face the following deductions from their payroll, while they still have an outstanding student loan.
Equiv 'marginal' (1) tax rates for graduates under 2012 system
Assumes current tax thresholds remain
|Annual earnings up to £10,000||No tax – as this is the typical 'personal allowance', the amount earnable before income tax starts.|
|Earnings over £10,000 up to £21,000||32% tax and national insurance|
|Earnings above £21,000||41% due to addition of student loan repayments|
|Earnings above £41,865||51% due to addition of higher rate tax, but drop in national insurance (2)|
|Earnings above £150,000||56% due to higher rate tax (2)|
|(1) 'Marginal' means you only pay the specified tax rate on that portion of salary. For more, see the Tax Rates guide. (2) Earn above £100,000 and your personal allowance will also be affected.|
In reality, it isn't a tax, it's a loan contract. In effect, it's somewhere between the two.
What's the reason I stress the tax concept? It's because many parents wrestle with 'how will I pay for my child to go to university?' and then risk their own financial solvency and security to do so. And while it may sound callous, you need to decide whether paying for it really is your responsibility.
The system is set up so that the cost is met by the beneficiary of the education - your child. When this is called a 'loan' many parents feel guilty and become desperate to avoid their child getting into this debt, even though they may not need to repay it.
Yet if we'd called it a tax, would you still feel compelled to prevent it? If you're a parent it's worth thinking this through to judge your own reaction.
Many school leavers go straight to university with their parents or grandparents yelling "STICK TO A BUDGET!" Yet that simply isn't enough info. Think about this for a moment:
A working person shouldn't spend more than they EARN.
What shouldn't a full-time student spend more than?
It's this piece of the budgeting jigsaw many people miss, but it's crucial - without knowing your income, you can't budget.
I'd define a student's income as: the student loan, any grant, any income from working and any money given by parents or relatives.
Total that up, and this is what you should budget not to spend more than.
It's important to note while this does include the student loan, it doesn't include 0% overdrafts, which at best should be seen as aids to cashflow but not income (see Best Student Accounts guide) or any other commercial debt.
While we're talking budgeting, if you're 17 and reading this guide, that's brilliant news - nothing is more important than understanding the cost of your education. Can I also suggest you read the Teen Cash Class guide? It'll give you more ideas on how to be successful with your money.
Offered a fee waiver or bursary? Go for the bursary
Those coming from homes with lower incomes, or with less traditional university backgrounds, are likely to be offered incentives by universities. The exact structure and money is likely to be given in one of three ways, but should be worth up to £3,000:
Here you are given a reduction each year on your tuition fees, meaning the loan you need is less.
This is some form of cash or gift in kind. It could range from a £1,000 grant or help with living arrangements, depending on your situation.
Similar to a bursary, it is usually a form of cash or gift in kind. Getting one depends on academic ability (usually A-level grades) rather than income.
See details about...
Learner support funding
Definitions of discretionary funding
Many organisations, including universities and colleges, offer additional funding to help students in particular circumstances. Sometimes this is to broaden the range of entrants to higher education and sometimes it aims to encourage applications from high achieving students.
Each organisation will have its own priorities for the students it wants to assist. So the following categories will vary depending on where and what is being studied. Students need to research what support is on offer both in their local area, subject area, and at the universities they are applying to.
A bursary is a grant that does not need to be repaid. Bursaries are usually paid by universities to help with costs associated with study: books and equipment, childcare, and travel are typical examples. Eligibility is usually determined by household income, or other personal circumstances, eg, those with children or those leaving care. Availability and how much you receive will vary at different universities.
A scholarship does not have to be repaid. Scholarships are usually paid in recognition of educational achievement and can help towards the costs of fees or other course costs and may also provide living cost support. Availability and how much you receive will vary at different universities.
Fee waiver/fee discount
This is paid to cover some (via a discount), or all (via a waiver) of your tuition fees. You will not usually receive a payment directly when you are awarded a fee waiver/discount. It reduces the amount of tuition fees you are required to pay and does not have to be paid back.
Info provided by Nasma.
Why a bursary beats a fee waiver
If you are given a choice, as some universities will be offering, with everything else being equal it is usually better to go for a bursary.
The reason for this is quite simple. As I've explained, many people will never repay in full, even at the £6,000 level.
Therefore, in real terms, unless you earn a higher salary on graduation the fee waiver is unlikely to reduce the amount you repay at all. So while it may feel like your fee and debt are lower, there is no material impact on your pocket.
Yet a bursary will provide definitive cash now, which is a boon and could reduce the need for any commercial borrowing. So as one is a certain gain, and the other a 'you may benefit in the future but might not', the choice is a no-brainer.
To get really advanced (feel free to ignore this) for those who are sure they’ll be on very big salaries there is an advantage to taking the fee waiver as it reduces the interest paid. Yet this is marginal at best over taking cash now, as inflation reduces the impact due to money being worth more now than later.
It is interesting to note that while worse for you, fee waivers are far better for the Treasury. As the money comes from the university, it decreases the amount the Government has to loan out.
Why are they giving out this money?
Universities who charge over £6,000 must use some of the excess funds over that amount to help improve access to university. The money comes from two sources, click to find out more...
The National Scholarship Programme (NSP) - lower income households
In 2014/15 the NSP had roughly £100 million to give out to students with a household income under £25,000 – half provided by universities, half by the state. Sadly, this funding won't be available in 2015/16 as government funding has been cut.
Yet the name is frankly less accurate than calling a rabbit a cabbage. It is neither national (there's no uniform system and each university provides its own) nor is it about scholarships (which are based on academic merit). It's actually about bursaries and fee waivers.
The double misnomer doesn’t mean it isn’t important though.
The Access Programme - widening participation
Institutions that charge fees above £6,000 are also obliged to put some of the excess charge (works out at an average of around 25%) into access agreement schemes to widen participation for students from under-represented groups.
This money will be given to students from low household incomes who come from under-represented groups, ie, those most able but least likely to apply.
Other forms of funding
On top of the official financial support, other funding sources are also available from scholarship sites such as Scholarship Search, Family Action, Turn2Us, Student Cash Point and Uni Grants UK. Though check the details directly with the university, find contact details on the Nasma website, or grant provider too.
There's no 100% guarantee... but retrospective changes to the system are unlikely
So now you understand it, the obvious question is, "how fixed is all this?"
The government has already announced it's selling off the remaining £40bn of student loan debt it has - a concern to many of the four million uni leavers since 1990 with outstanding loans.
The Department for Business, Innovation and Skills (which deals with universities) sent us the terms of the student loan book sale which, includes:
"Borrower protection is a primary aim of the Government. That is why terms and conditions, including the calculation of interest rates will not be altered to the detriment of borrowers as a result of any sale."
And it also told us:
"Following a sale, SLC and HMRC will continue to administer loans, with the collection processes remaining the same. This means that there will be no changes to the way individuals make repayments through the PAYE system or to the way individuals make repayments through self-assessment channels."
Therefore, currently there are no planned changes to the terms of the loans. However, it's important to understand Parliament is omnicompetent. In other words, it's completely free to make and change rules made in the past. This means there is no 100% guarantee the system will remain unchanged for the 30 years until you’re clear. It's worth being aware this is a risk factor.
Yet once the system is finalised and you’ve started university any negative changes in the future are unlikely, as policymakers are generally adverse to retrospective change.
Looking at the history of student loans, any major changes to the system have only affected new students. Those who have already started remain on the system in place when they started university (with minor positive changes, such as uprating due to inflation).
While nothing is impossible, the best that can be done is to plan that the system in place now will continue throughout your repayments.