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The radical overhaul of student funding has finally happened. Yet myths, panic and confusion about the changes to English student finance for those starting in 2012, 2013 and beyond are still widespread.
The coverage has all focused on "trebling tuition fees" and riots in the street. Yet what really counts for students is the practical impact on their pockets.
This special guide by Martin Lewis aims to change that, forgetting the politics and concentrating on the 20+ key facts every potential student, parent and grandparent should know.
In this guide
Other guides
| Tweet | mse.me/students2013 |
Current students see Student MoneySaving, Student Accounts, Repay My Student Loan?
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, I agreed to head up the Independent 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? This is part of our wider campaign to get compulsory financial education in schools.
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Trebling of tuition fees doesn't necessarily mean trebling of costs
All institutions are now allowed to charge up to �6,000 a year and many will charge 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.
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The changes ONLY hit first time undergraduates starting in or 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 a course, on a foundation course, wanting to study healthcare/medicineChanging or deferring course
If you started a course before 2012, and then changed, provided it was to an equivalent (full-time to full-time or part-time to part-time) degree, even at a different university, you should be able to continue on the same fee structure and not move to the new system. Always double-check with the institution beforehand.
If you were accepted onto a pre-2012 course and chose, or needed, to defer, you'll continue on the 2011/12 financial package. Yet if you took at least a year before starting you'll be moved to the new financial package.Foundation course
If you started a higher education course in 2011 that includes a foundation year which is an integral part of the course, and you enrolled at the outset for the integrated course, you will continue to remain on the 2011 structure and not move to the new one.
However, if you began a freestanding higher education course in 2011, like certain 'access' courses, and start a degree in the following years you would be treated as a new starter.
NHS Bursary Scheme
Medical and healthcare students get support from the NHS Bursary Scheme. The amounts and rules are different depending on the course.
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 receive �3,375 in years two, three and four. Both will then be able to apply for a student loan for the remainder of their fees.
Fees for suitable non-medical courses, eg, physiotherapy, nursing and midwifery, are 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 30-week courses) and a non-means-tested maintenance loan of up to �2,324 (�3,263 London, �1,744 home, reduced in final year).
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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 special Student Loan Company loans which full-time students only need to start repaying in the April AFTER graduation (or leaving) at the earliest, no matter how long your course.
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.
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.
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 is 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 is scheduled to rise in line with average earnings. This will start in April 2017 (a year after the first graduates under the new system - 2012 starters - are eligible to repay).
For the rest of this guide, for ease, I will just refer to it as 'the �21,000 threshold'.Further info on repaying:
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 student loans are 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 repayments?
Student loan repayments should be based on your income AFTER pension contributions have been deducted. Whether that happens though depends on how you contribute to your pension.
- Employer's pension. If you are in an employer's pension scheme, eg, a final salary or career average plan, your repayments will automatically be calculated on your income after pension contributions.
- Personal pension. If you pay into a personal pension, whether monthly via your company payroll or directly as a lump sum, you need to request a self-assessment tax return (if you don�t already do one) to have the pension contributions taken into account.
You need to 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.
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No debt collectors with student loans
Student loans 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.
The main 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.How the self-employed repay student loans
You always repay the student loan in the same was 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.
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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. More on 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).
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'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 in or after September 2012 that's all changed. The interest is as follows:
- While studying: 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 expected to be used is the previous March's RPI inflation rate, though this will be confirmed in due course. March 2012's inflation rate was 3.6%. March 2013's inflation rate was 3.3% meaning interest charged on new-style student loans in 2013/14 will be 6.3%.
Find more about interest rates if you don't complete the course.If you start a course in September 2012 or 2013, 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.
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Repayments are �470/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 �15,795. Those starting in 2012 and beyond see that increased to �21,000.
That means those earning above the �21,000 threshold have �470-a-year more in their pockets than now. A chart should help.Earnings Current system New 2012 system Annual repayment Monthly pay packet reduction it's equivalent to Annual repayment Monthly pay packet reduction it's equivalent to �15,000 Nothing Nothing Nothing Nothing �16,000 �18 �1.50 Nothing Nothing �21,000 �470 �39 Nothing Nothing �22,000 �560 �46.50 �90 �7.50 �30,000 �1,280 �106.50 �810 �67.50 �40,000 �2,180 �181.50 �1,710 �142.50 �50,000 �3,080 �256.50 �2,610 �217.50 For simplicity, I�ve compared 2012 starters (who�ll start repaying in 2016) with current graduates.
Actually a fairer comparison will be with 2011 starters � the last on the old system. 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. There will still almost certainly be a gap, read more on why inflation decreases the difference.
Why inflation decreases the difference
Current graduates start repaying their loans when they earn more than �15,795. 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 around �16,365 (March 2012's RPI was 3.6%).
And in April 2014, this minimum income threshold should rise to around �16,905, as March 2013's RPI inflation was 3.3%.
Here�s a chart showing the impact at various rates factoring in the above known rate.Repayments in 2016 Average annual inflation (2013-16) Current system New system Increase in disposable income under new system No inflation �16,360 �21,000 �420 2.5% (A) �17,620 �21,000 �305 4% �18,410 �21,000 �230 6.5% �19,765 �21,000 �110 9% �21,190 �21,000 (�17) (A) Roughly the Bank of England�s inflation target (CPI inflation at 2% - so this is roughly RPI 2.5%) For the sake of clarity, it would take average annual inflation from 2013 to 2016 of a huge 9% for the repayments to be equal - frankly inflation at that rate would mean we had even bigger national problems.
What about after 2016?
From 2017 the threshold for repayment under the new system is scheduled to rise with average earnings � there is as yet no decision on what will happen beyond 2016 to the thresholds for those on the current system.
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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.
The one silver lining to this is for the first time part-time students (provided it's their first degree and they're studying at least 25% of a full-time course) will no longer need to find the cash upfront. They're now eligible for tuition fee Student Loan Company loans on exactly the same basis as full-time students. They won't be eligible for maintenance loans or grants though.
Full info on this in my Part-Time Students' Finance Guide, produced by the Independent Taskforce on Student Finance Information.
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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. See the min, max and average fees planned to be charged by each university (pages 8 and 9).
Student loans also cover living costs
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 students' 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) 2012/13 �4,375 �5,500 �7,675 �6,535 2013/14 �4,375 �5,500 �7,675 �6,535 Deadlines to apply for maintenance loans
To get these loans in time for the start of the autumn term/semester, students resident in England need to apply by 31 May 2013. In Scotland, prospective students have until 30 June, but for Welsh & Northern Irish students, the deadline has passed.
Missing the deadline doesn't mean you can no longer apply for a loan, it just means the cash might not arrive until a few weeks into term. See Gov.UK (England), Student Awards Agency for Scotland, Student Finance Wales, or Student Finance ni.
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Under �42,600 income households' students get maintenance grants
In 2012/13 full-time students with
residual income
under �25,000 get a grant of �3,250 for living costs (increased slightly to �3,354 in 2013/14) � in other words, it never needs repaying (unless you leave your course early, when you may be asked to pay it back).
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 2012/13, a student living away from home (outside London) would get a grant of �3,250 and a maximum loan of �3,875 (not the full �5,500).
Those from households with income between �25,001 and �42,600 (increasing to �42,611 in 2013/14) get smaller grants, though the maximum loan amount increases to make up for it.Support package 2012/13 Support package 2013/14 Household income Non-repayable maintenance grants Maintenance loans Total Non-repayable maintenance grants Maintenance loans Total �25,000 or less �3,250 �3,875 �7,125 �3,354 �3,823 �7,177 �30,000 �2,341 �4,330 �6,671 �2,416 �4,292 �6,708 �35,000 �1,432 �4,784 �6,216 �1,478 �4,761 �6,239 �40,000 �523 �5,239 �5,762 �540 �5,230 �5,770 �45,000 �0 �5,288 �5,288 �0 �5,288 �5,288 �50,000 �0 �4,788 �4,788 �0 �4,788 �4,788 �55,000 �0 �4,288 �4,288 �0 �4,288 �4,288 �60,000 �0 �3,788 �3,788 �0 �3,788 �3,788 Over �62,500 �0 �3,575 �3,575 �0 �3,575 �3,575 For students living away from home and studying outside London 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 this and it happens, but in general it's only for bigger value transactions such as mortgages.
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Bigger tuition fees are unlikely to impact the ability to get a mortgage
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 will usually easily cancel this out.
Here's what the Council for Mortgage Lenders (the mortgage company trade association) has said, sadly in less than plain English: "A student loan is very unlikely to impact materially on an individual's ability to get a mortgage, but the amount of mortgage available may depend on net income."
To explain this, it's more relevant to compare the impact of the system's change to those who are currently graduating.As I've already explained, those starting in 2012 and beyond are likely to have HIGHER disposable (net) income than current graduates. This makes saving for a deposit and repaying a mortgage in the years after graduation easier.
However, they will be repaying long after current graduates, so at that point they will 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 a good number of 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.
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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.
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Scotland: Scottish students studying in Scotland will carry on not paying any tuition fees from 2012. 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. If applicable, repayments apply to salaries above �15,575. Welsh students in Scotland will receive some support from the Welsh Government - see below for details.
More info: Student Awards Agency for Scotland -
Northern Ireland: Northern Ireland students studying in Northern Ireland will pay a fixed price of �3,465 from 2012. 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 -
Wales: Tuition fees at Welsh universities follow the English pattern and will be increased up to �9,000 from 2012. However, the Welsh Government will cover the increase for Welsh resident students. They won't have to pay any more than the current cost plus inflation, likely to be �3,465. 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 2012 and 2013 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 �3,465Northern Ireland Up to �9k Up to �9k Up to �9k �3,465 Source: Ucas -
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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.
In one way it's good, as it means the level of the tuition fees is irrelevant to most - they'll just keep paying the same proportion each month and if they don't earn enough, they won't come close to paying back what was borrowed (never mind the interest).
But it's also means the loan won't be cleared until it's wiped after 30 years.
The following table should help you see roughly who's likely to pay the loan off, and what the total cost will be. As inflation and students' future income are both unpredictable, we've had to make some assumptions. This table should be seen as an indication of scale rather than anything more exact.
Before you look at the table
Please be aware it's designed to give a VERY rough indication of who�s likely to pay the loan off. We�ve been forced to make many assumptions about inflation, earnings growth and graduates' earning growth, small changes which have a big impact. So please use this as a guide only.
Expect to repay more quickly than the chart shows if�
You�re in a career where salary increases rapidly
You live at home or get a maintenance grantIf so, scroll down for a better fit. Someone starting on �15,000 but with big salary increases to come should probably look at results for a �20,000-�25,000 starter.
Expect to repay more slowly than the chart shows if�
You�re in a career where salary remains static
You�re likely to spend periods not working (redundancy, career break, unemployment, parenting)
You're studying in London and not living at home
You're likely to switch to part-time work
You're likely to retire during the 30 yearsIn this case you're likely to pay off your debts more slowly, so look up the chart for a better fit. Someone starting on �25,000 should look at the results for a �20,000 or �15,000 starter.
Click the button closest to your tuition costs to get an indication of what you'll pay back...
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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 (�5,500 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. Think of it like a graduate tax, not a loan
The maximum possible loan combining tuition fees and maintenance is �16,675 a year; �50,000 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 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.
Equivalent 'marginal' (1) tax rates for graduates under 2012 system
Assumes current tax thresholds remainAnnual earnings up to �9,440 No tax � as this is the typical 'personal allowance', the amount earnable before income tax starts. Earnings over �9,440 up to �21,000 32% tax and national insurance Earnings above �21,000 41% due to addition of student loan repayments Earnings above �41,450 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.
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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 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.
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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.
See details about learner support funding or check what each uni is offering on Student Finance England (remember, you'll need to apply directly to the uni once you�ve an offer of a place but you should find out in advance what they offer and if you qualify).
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.
Bursaries
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.
Scholarships
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 2012/13 the NSP will have roughly �100 million to give out to students with a household income under �25,000 � half provided by universities, half by the state. The amounts for 2013/14 are likely to be similar, if not the same.
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. In 2012, is about �500 million, which will be spent on waivers and bursaries (including part of the NSP). Again, it's likely to be similar in 2013/14.
This money will be given to students from household incomes up to �42,611 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.
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Can the system be changed once I've started?
So now you understand it, the obvious question is, "how fixed is all this?"
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.
For much more, see see my blog: Can the government change student loan terms?
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