GUIDE TO STUDENT FINANCE
How much does university really cost?
At the moment the maximum universities can charge for tuition fees is £9,000 but for courses starting in 2017 this will increase to £9,250. Not all universities charge the full tuition fees but the majority do.
In addition to your tuition fees, you will have to pay for accommodation costs, travel to and from university if you are not on campus, books, food, clothes and ad hoc additional expenses. Even things like textbooks can be quite expensive and many students find that the amount of money they get from the government does not cover their full costs. Costs of accommodation vary depending on where in the country you are studying, but can range from £80 per week to £150 or more. These are all things that you will need to factor in when considering the cost of going to University.
You do not need the money upfront
The important thing to remember is that if you have made up your mind that you want to go to university, you can get a loan from the government which means that you will not need to have the money yourself to pay for it. You do not have to start paying back this loan until you have graduated and started earning.
However, many students find that the amount of money you can borrow from the government does not cover all of their costs. Students are finding that they often need to work part time to make up the difference or get additional money from their parents. If you are not in the position of being able to rely on your parents to make up the difference, you will need to consider how you will bridge this gap.
Read our simple guide to student funding for a straightforward explanation of what’s out there and how to get it, or for a quick overview, take a look at our infographic.
Money from the Government
There are three main sources of funds from the government available to students:
• A Tuition Fee Loan – this is a loan of up to £9,000 a year, made to you to pay for your tuition fees and it is paid directly to the University you will be attending. You have to pay the loan back.
• A Maintenance Loan – this loan of up to £8,200 a year is intended to help towards your living costs whilst at University including accommodation. Everyone is entitled to a percentage of this loan, but to be eligible for the full amount
will be required to provide details of your household income. You have to pay the loan back.
• A Maintenance Grant – Unfortunately the maintenance grant that has previously been available to students from low income households will no longer be available for 2016 entrants. If you have already started university before 2016 and you are in receipt of a grant you will continue to receive it until you graduate.
How the money is paid back
Your student loan will probably be the first loan you ever take out. Owing such a large amount of money can be a daunting prospect, so it is important to understand how the loans and repayments work, so you do not spend all your time worrying about it.
If you have never taken a loan before, you may not understand some of the terminology that is used, which is where our financial glossary can come in useful to help explain basic financial concepts to beginners.
How is the loan paid?
When you apply for the tuition fee loan, the amount will be transferred directly to the University you will be attending.
The Maintenance loan will be paid in three separate instalments at the beginning of each term, in to your bank account.
How much interest will I be charged?
Interest will start to be charged on the loan from the date it is paid out until the date is it paid off. The good news is that student loans are being charged interest at a considerably reduced rate of interest than any commercial loan.
• The interest on student loans is calculated at 3% above the Retail Price Index, or the rate of inflation while you are studying full time.
• Once you graduate, if you earn less than £21,000 you will only be charged interest at the RPI.
• Once you start earning over £21,000 the % interest above the RPI increases as you earn more money, up to 3% when you earn £41,000 or above.
As an example, the current (September 2016) RPI stands at 2%. This means that you would be charged interest at 5% (2% +3%). These rates are calculated from the date your loan is paid out and change annually based on the RPI of the time.
How to I apply for a loan?
All the applications for student loans are being handled by the Student Loans Company.
How do I repay the loan?
You only start repaying the loan from the April after you graduate if you are earning £21,000 or more. If you are not, then you do not start repaying the loan until you are.
The amount you pay is calculated at 9% per year of the money you earn above £21,000. So if you earn £22,000 you will pay 9% of £1,000 or £90 a year. If you earn £30,000 you will pay 9% of £9,000, which makes an annual repayment of £810. Divide these figures by 12 and you will get the amount you will have to pay back each month.
The monthly repayments will be taken directly from your salary before it is given to you, so you will never see that money and won't be able to spend it!
Warning! – there is nothing in the student loan agreement that you will sign that says these terms will not change and over the years, there is every possibility that they will do so.
Should I pay the tuition fees up front if I have the money?
If you have the money to pay the tuition fees, it is not necessarily a good idea to pay them up front.
The amount you pay back depends on how much you earn when you graduate and not how much you actually borrowed. This means that if your salary doesn't increase greatly or at all over the next 30 years – say you enter a profession where there is a ceiling on your potential salary – you could find that you do not actually need to pay the full amount back. The loans are cancelled out after 30 years, which means that using the scenario above, where you earn £22,000 and are repaying £90 a year, if this didn't change you would repay £2,700 over 30 years.
Now hopefully, going to University will mean that you do get a better paid job, and that in turn means that you will need to pay more of the loan back, but until you know what your job prospects are, you may be better off to invest the money you have elsewhere and sit tight before you consider paying it off.
Although you will be accruing interest on the loan, you will also be accruing interest on the money you have invested, and whilst they may not balance each other out, in the long term it could save you a lot of money.
Take a look at our simple Loan Calculator which will give you a good visual indication of when you might have paid off your loan based on projected income and interest rates.
Should I pay my loan off if I have the money?
Once you have graduated and you start earning money, you will have a clear idea of how much your monthly repayments are and how that affects your monthly budget.
The thing to remember about paying off your loan is that the interest charged on student loans is relatively low compared to other commercial loans, so if you are likely to want to borrow money for other things, such as a car or a mortgage these will cost you far more than the student loan. Therefore by putting the money you have towards reducing those debts is a better proposition than using it to pay off the student loan.
If you find yourself in the fortunate position of having the money and you do not envisage that you will need to borrow money for anything else, then it would make sense to pay off the loan. There are no early repayment penalties on a student loan as there are on mortgages.
Scholarships, Grants and Bursaries
In addition to the money you can borrow from the government, there are also scholarships, grants and bursaries available to help with the costs. This is money that you do not have to pay back which can be awarded for a variety of reasons; academic merit, sporting achievement, personal circumstances or financial need.
Most universities offer some form of scholarships and bursaries and once you know which university you will be going to you should check out what they have on offer. There are also a lot of scholarships offered by companies, charities and trusts which are open to students at any university. Read our Guide to Scholarships, Grants and Bursaries to find out more.