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Student Loans Mythbusting

Fees, loans and grants facts

Student guide to fees, loans and grantsIgnore 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.

Plus, if you're from England, Wales or Northern Ireland, student finance applications for the 2015/16 academic year are now open. In Scotland, they will open in April. For more read how & when to apply.

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

Trebling feesAll 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.

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...

Changing or deferring course

On a foundation course

Wanting to study healthcare or medicine (NHS Bursary Scheme)

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.

Earn under £21,000 and you'll never repay

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.

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.

After 30 years, any and all remaining debt is wiped

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

'Above-inflation' interest will be charged. Don't understand interest rates? Read the Interest Rates Beginners' Guide

Above-Inflation interest will be charged 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).

Repayments are £368/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.

You WILL owe money for longer than current graduates and MAY pay a LOT more

Owe more and take longer to pay it off 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

Money from hand to hand 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).

You can borrow for living costs too, but apply early to get cash in time for term

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)
2014/15 £4,418 £5,555 £7,751 £6,600
2015/16 £4,565 £5,740 £8,009 £6,820
One big concern is student loans aren’t big enough

While most headlines rant about the size of student loans, actually for many the problem is living loans aren’t actually large enough. With student rents rising and costs increasing, for some, living off these amounts is tight. There’s little signs of the government looking to increase these amounts.

So 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.

  • English students

    You can apply now for courses starting in autumn 2015. The deadline to apply is 31 May for first-time applicants, and toward the end of June for continuing students.

  • Scottish students

    All students, new and returning, have until the end of June to apply, though applications don't open until April.

  • Welsh students

    New students have until 15 May, returning students until early June. Applications are open now.

  • Northern Irish students

    New student deadline's in April, returning students need to apply by June. Applications are open now.

Missing the deadline doesn't mean you can no longer apply for a loan, it just means the cash may not arrive until a few weeks into the term. 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

Broke student with empty pockets 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).

Student loans DO NOT go on credit files

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).

Tuition fees can impact your ability to get a mortgage, but not as much as people think

House keysI 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.

You can repay early

You can repay student debt 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.

Students from, or going to, Welsh, Scottish and Northern Irish unis may have different rules

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.

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.

Think of it like a graduate tax, not a loan

Graduate tax, not a loan The maximum possible loan combining tuition fees and maintenance in 2015 is £17,000 a year; £51,000 over a three-year course.

Student loans should be counted as part of students' income

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?

Calculate student loansIt's this piece of the budgeting jigsaw many people miss, but it's crucial - without knowing your income, you can't budget.

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:

There's no 100% guarantee... but retrospective changes to the system are unlikely

Coin flipSo now you understand it, the obvious question is, "how fixed is all this?"