Student Loans Mythbusting

Part-timers and post-grads can get loans for tuition fees too

Part-time students, often forgotten, make up 40% of all undergraduates. Fees start at around £4,500 with a maximum of £6,935 in 2018/19.

Yet since 2012, for the first time, part-time students studying at least 25% of a full-time course have been eligible for tuition fee Student Loans Company loans on exactly the same basis as full-time students.

And now, if your course starts on or after 1 August 2018, you are also eligible for maintenance loans or grants as well.

Postgraduate students

Since August 2016 new master's students have been able to apply for Student Loans Company loans to pay for their courses – these only need repaying if they earn enough once the course ends. Students starting from August 2018 can apply for up to £10,609.

Full info on this in my Postgraduate Student Loans Guide.

The marketisation of university hasn't worked – almost all unis charge £9,000

When student finance was first introduced in 2012, the idea was that there would be some expensive degrees and some cheap degrees and they were charged between £6,000 and £9,000.

Frankly, now almost all universities for full-time students charge £9,000 and they're going to be allowed to increase with inflation in the future, meaning some 2018/19 starters pay £9,250 tuition fees.

But it's worth examining whether this makes a jot of difference to you. Whether you choose a course that costs £6,000 or £9,250, you'll repay the same amount each month, as it purely depends on what you earn (9% above £25,000).

In other words, whatever your tuition fees (and maintenance loan) if you earn £26,000, 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 4) 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

Full-time students 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 installments direct to the student's bank account.

The loan is repaid in exactly the same way as the loan for tuition fees (ie, 9% of everything earned above £25,000).

The amount available is dictated by two elements:

• The guaranteed bit

  Up to 65% of the maximum living cost loan is currently 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 your 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 – if they don't it can be difficult. Feel free to show them this to help explain the way the system works.

Maintenance loans now available for the over 60s

It used to be these loans were only available to the under 60s. But since 2016/17, over 60s are able to apply for loans for living costs too. The maximum loan for living costs in 2018/19 for all full-time students aged 60 or over will be £3,680.

Technical education students to receive maintenance loans from 2019

Students taking higher-level technical courses in areas such as construction, digital skills and social care will be able to apply for maintenance loans from the 2019/20 academic year.

The loans will be available to those on technical education courses at levels four to six in national colleges and institutes of technology. Full details of the loans, including maximum amounts and means-tested elements, are yet to be announced, we'll update this guide when we know more.

My biggest problem is the loan isn't big enough

While most media outlets like to focus on the headline figure of £50,000 – in real terms the main issue most students face is that the loan isn't big enough. The amount of money to live off can barely cover accommodation fees in some circumstances.

Therefore, it's crucial to ensure there is a real focus on budgeting, and you don't spend the cash the first few weeks of term. Part-time jobs, any grants, extra cash from parents will all help. See Student MoneySaving tips for more on how to make the cash stretch further.

Deadlines to apply for student loans & grants

To get the cash by the start of the September 2018 term, you needed to meet the following deadlines, which change based on where you live:

If you live in England: For new students it was 25 May, for returning students, 22 June.

If you live in Wales: For new students it was 11 May, for returning students, 8 June.

If you live in Northern Ireland: For new students it was 13 April, for returning students it is 29 June.

Missed the deadline? Don’t worry, you can still apply up to nine months after your course start date for funding but you won’t be certain to get the cash in time for the start of term if you’re late.

If you live in Scotland: For any students, to get funding in time you must apply by 30 June, but if you make any errors on your form, be aware that’s the final cut-off.

Grants were replaced by larger loans for 2016/17 starters and beyond

In the 2015 Budget the Chancellor announced that from the 2016/17 academic year, maintenance grants would be scrapped, so all of the money for maintenance now comes in the form of a student loan in England.

Existing students at the time will not be affected by this change, ie, those who start(ed) from the 2015/16 academic year or earlier will still continue to get their grants even after 2016.

The silver lining to this cloud is that the maximum borrowing was substantially increased from 2016, though only for new students.

The amount students get depends on their family's household income, though under the new, larger loans system, only 45-50% of the loan is guaranteed (depending where you study) with the remaining proportion income-assessed, meaning for those studying outside London, only £3,690 of the £8,700 maximum is guaranteed.

This means everyone eligible is entitled to a loan, regardless of how much their parents earn, although only those with a household income of £25,000 or under will be able to get the maximum amounts in 2018/19 of:

• Living at home: £7,324/year
• Living away from home, outside London: £8,700/year
• Living away from home in London: £11,354/year

If your parents earn more than £25,000, they're expected to contribute

The amount of maintenance loan you get's based on your parents' (or household) income. So, if your parents earn more than £25,000 you won't get the full amount – and the amount you do get is means tested on their income.

Only around 45% of the loan is guaranteed under the new rules, the idea being that your parents should make up the shortfall in loan amount so everyone gets the maximum one way or another.

We've put together a table using the Student finance calculator at Gov.uk showing how much your parents'll be expected to contribute at different income levels (though these are suggested – you can't force them to pay). The amounts differ depending on where you are living...

However, it's worth noting that if you're eligible for benefits, there's more than one university student in your household, or you've applied for supplementary support, your parents' income's assessed in a different way. Full information's available in this catchily-titled Financial Memorandum 2018/19.

It's also worth checking out Martin's blog on how much the Government expects parents to contribute to their children for university.

Will scrapping student grants stop people going to university?

In practical terms, getting rid of the student grant will only affect high-earning graduates. That's because after leaving university, students repay 9% of everything they earn over £25,000 for a maximum of 30 years. Those who'd currently qualify for a full grant would only actually pay more if it was wiped, if they'd repay their entire tuition fee, remaining maintenance loan after the grant, and interest within the thirty years before the debt wipes.

A number crunch shows, as a rough rule of thumb, for a student living away from home, taking the full tuition fees, this is only for those on graduate starting salaries substantially above £30,000 who then get above inflation pay rises after that too. That is at the very high end of graduate earnings.

The real risk with ending grants is the fact larger loans can be a psychological deterrent, especially to those from non university backgrounds.

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).

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.

Student debt can impact your ability to get a mortgage, but not as much as people think

I know many parents worry that now we have £9,000 tuition fees the 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.

Many worry about the "huge debt" putting lenders off, actually that isn't a problem, student loans don't appear on your credit file, so the impact isn't really about whether you'll be allowed a mortgage or not.

Where it does impact is in the affordability checks which establish whether you can afford to make repayments on a mortgage. 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. For full help see First-Time Buyers Mortgage Guide.

The changes in 2012 had some benefits for those getting mortgages

Many parents' biggest fear was about the increase in tuition fees from £3,000 to £9,000 back in 2012. Yet actually in some ways the changes were an improvement.

While it's now a somewhat dated issue, it does merit a mention – and if you understand this explanation then it means you've nailed understanding the new system.

If we contrast student loans for those who start now with their 2011 predecessors, while the borrowing is bigger, the repayments are smaller. That's because recent starters pay 9% over £25,000, while those who started before pay 9% over £17,335.

That means the 2011 cohort lose more of their disposable income, making mortgages far less 'affordable'.

Yet the fact they repay more each month and have borrowed less mean they're likely to clear their debt much quicker, so once they've repaid it (typically after a decade or so), they then have a bigger disposable income. Thus all in all, for mortgage getting at least, the change was swings and roundabouts.

You can repay student loans 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.

Beware paying tuition fees upfront, it could leave you £10,000s worse off

Many parents save up to avoid their children getting into 'debt'. Even more horrifically, some borrow money themselves so their children won't need student loans.

That's a petrifying thought, a student loan is the 'best' form of debt you'll ever get. The interest is relatively low and crucially you only need to repay it if you earn enough.

Yet even if you've got the savings anyway it can be very bad financial logic. Let's take a look...

An example:

Paul wants to study agricultural sciences. His parents decide they don't want him getting the tuition fee loan and shell out £27,000 of their hard earned cash to pay his tuition fees, and give him £20,000 to live off over three years.

He graduates and wonderfully decides to go and work for a charity based in Africa for 10 years, where he never earns over £25,000. Then he comes back, gets married and becomes a full-time parent of their three children.

They paid £48,000 for money Paul will never need to repay. In fact, they'd have been far better off to save the money towards a mortgage deposit for him, as that's a far more difficult task..

Of course, I've given you an extreme example, but if you are considering paying tuition fees up front, it can still be a waste of cash even for those who earn well over £25,000 after university. If you're considering this read my full Beware Paying Tuition Fees Up front guide, which takes you through the pros and cons.

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.

• Scotland:

  Scottish students studying in Scotland pay no tuition fees. English and Northern Irish students studying there will be charged up to £9,250 per year, as will Scottish students studying in England, Wales and Northern Ireland.

  More info: Student Awards Agency for Scotland

• Northern Ireland:

  Northern Irish students studying in Northern Ireland can pay up to £4,160 in 2018/19. Those from England, Scotland or Wales will be charged up to £9,250 per year.

  More info: Student Finance ni

• Wales:

  Tuition fees at Welsh Universities are £9,000 for those studying in Wales and £9,250 if studying in the rest of the UK.

  More info: Student Finance Wales

Here's a summary of the situation for 2018 starters:

The very highest earners aren't the very highest payers

Throughout this guide, I've explained that 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 I add it in for technical correctness and because 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. If we take a ludicrous example to prove the point, if someone earned a billion pounds in their first month of work, they'd have cleared the debt in one month, so no interest would've accrued.

Of course they still repay far more in total than low earners, but it does mean rather perversely that very very high earners repay less than high earners.

Try a wee experiment to see this. Go to the Student Finance Calculator and set it to the maximum tuition fees (£9,250 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 student loan isn't a debt; if we changed its name to the more accurate 'graduate contribution' this mythbusting guide would be less needed

The name 'student loans' frightens people. They scare the risk averse, which tends to especially be those from non-traditional university backgrounds off going to university. They make parents do silly things like borrowing on their expensive mortgage so their child won't be 'in debt'.

Even worse it means many students have lost the fear of debt, and ended up taking out credit cards or payday loans – after all if the Government enforces you to 'borrow' what can be wrong with it.

Yet the truth is what we call a student loan isn't really a debt like any other, in fact it acts far more like a tax than a loan. After all...

• 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

But in reality, it isn't a tax, it's more of a contributory contract; in effect, though, it's somewhere between the two.

Time to change the name

So if we're looking for a name for this hybrid form of finance, lets try the "contribution" as used in Australia. Below are a few key student loan facts where I've changed the word 'repay' for 'contribute' and suddenly they make more sense.

· You need only contribute if you earn enough (£25,000 in a year) once you graduate
· Your contributions are taken via the payroll
· The more financially successful you are, the more you will contribute in total
- If you don't earn enough, you don't have to contribute
- You only have to contribute for 30 years.

Suddenly this fear of debt looks ridiculous. Would a student say: "I'm not going to university, because if I'm a high earner afterwards they'll ask me for a contribution to my education." Of course not, they'd relish the financial success, and be assured that if they didn't do too well, they wouldn't contribute as much or even nothing at all.

The same is true of parents. Many say: "I'm worried my child will be £50,000 in debt when they leave university, I will do all I can to prevent it." However I've never heard anyone say "I'm worried my child will earn enough to be a higher-rate taxpayer after university, I'm saving up now to pay their tax for them."

Let's take this a step further, and put the 'contribution' within the model of income tax. Take a look at this table.

I've been campaigning to get the name changed, including meeting with the Universities Minister, for further arguments on it see my student loans aren't a debt editorial. Most recently at a Conservative party conference the Universities Minister agree with me that student loans should be called 'graduate contributions', we'll update this guide with any further developments.

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?

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 an aid to cash flow but not income (see Best Student Accounts guide) or any other commercial debt.

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:

• Fee waiver

  Here you are given a reduction each year on your tuition fees, meaning the loan you need is less.

• Bursary

  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.

• Scholarship

  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.

Warning. This is how it works now – sadly it can be changed – even retrospectively

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 over four million uni leavers since 1998 with outstanding loans. In itself that can't change the terms and structures of the way the loans work, but it can change operating practices which may be a pain in the neck for some.

Yet, 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.

In the past it has always been thought that retrospective changes to the system go against natural justice and it hasn't happened – after all each time a new student finance system has been introduced, it has only applied to new starters.


Yet that sacred trust was breached in November 2015 – the Government froze the repayment threshold for all those who started in 2012 and beyond. The threshold had meant to be increased. This effectively hiked the cost of student loans above what people had thought they would be when they started university. That shouldn't happen. No commercial firm would be allowed to do so.

However, the student loan repayment threshold was increased from £21,000 to £25,000 in April 2018 as part of a wide-ranging review of student finance. Tuition fees are to be frozen at £9,250 until 2019.

Yet, the Government still refuses to enshrine many elements of student loan rates into statute – meaning it can change rates without a vote in the House of Commons.

This is a very worrying situation as it means it is difficult to trust the system. Yet unfortunately if you want to go to university you've no choice.