With your UCAS application under your belt and hopefully the offers you want, your thoughts will start to turn to applying for your student loan, but it is surprising how many students and their parents do not really understand how the student loans work and what additional costs you will have which aren’t covered by the loans.
Taking your first loan is a big step, so make sure you understand how it works, how much you may have to pay back and what extra money you may need to find.
So what money can you get from the Government?
There are three main sources of funds from the government available to students.
- A tuition fee loan – up to £9,250 a year, depending on the cost of your tuition fees, which is paid directly to the university you enrol at. This loan starts accruing interest from the moment you take it out.
- A Maintenance Loan – up to £11,354 a year to help with your living costs while at university, including accommodation.
How is the interest calculated?
Despite what many people believe, the interest on the loan is charged from the date it is first paid out. It applies to both the Tuition Fee Loan and the Maintenance Loan but not the Maintenance Grant.
The interest rate is calculated at 3% above the Retail Price Index (the rate of inflation). This means that your interest changes as inflation goes up or down. As an example, if the RPI is 2.3%, so student loans would be accruing interest at 5.3%.
Once you graduate, the interest rate changes depending on how much you earn. If you don’t earn more than £25,000 it is charged at the RPI, however once you start earning above £25,000 the interest rate rises up to a maximum of 3% above the RPI depending on how much you earn. The more you earn the more you are charged.
REMEMBER THIS MEANS THAT YOU WILL OWE SIGNIFICANTLY MORE THAN YOU INITIALLY BORROW.
How do I pay it back?
You only need to start paying back your loan once you start earning more than £25,000. If you never earn above £21,000 then you never have to pay anything back, but do not bank on this. For a graduate, £25,000 may be a good starting salary but your salary will go up.
Once you do earn over £25,000, you will start to pay back your loan. This will be deducted from your salary by your employer before you get it and it will be at a rate of 9% of your take home pay.
Is it true I might not have to pay it all back?
While you are not earning over £25,000 you do not have to repay your loan. Similarly if you are out of work or take a career break for any reason and you are not earning over £25,000 your repayments are put on hold.
The loans are cancelled after 30 years, which means even though you may start paying it back if you are not a high earner or do not work for some time during those 30 years, you may find that you do not have to pay the full amount back.
If you turn out to be a high earner, you end up paying even more back so unless you have a crystal ball do not bank on not having to pay it back.
What extra money might I need?
According to the National Student Money Survey in 2017, students are short, on average, by about £221 every month after the Maintenance Loan. Quite simply, the amount you get from these two sources of income will probably not cover your costs.
It obviously depends on where you study as the accommodation and living costs vary considerably around the country, but you will undoubtedly need an additional source of income to keep you afloat, whether that is help from your parents, or a part time job.
Make sure you work out how much this is likely to be and ensure that you have it covered before you start at university.