Student loans: How do they work?

Going to university offers a fantastic opportunity. But you’ll need to work out how to cover your costs while you’re there…

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If you are starting a degree as a "fresher" this September or October, tuition fees of up to £9,250 per year, plus accommodation and living costs mean that a student loan is likely to be an essential.

Here’s how they work…

When should I apply?

You can apply for a student loan even if you don’t have a uni place confirmed yet.

If you are in England and are looking to have your funding in place for the start of term, the deadline for applying for student loans was 24 May 2019.

For Welsh students the deadline is 11 May, for Northern Irish students it is 12 April. In Scotland, students have until 30 June.

But don't despair if you don't get your application done in time. You can still apply for your loans now up to nine months after your course start date, it just means you may have to wait a few weeks longer for your funding.

How much can I borrow?

The total amount you can get from student loans depends on where you are living (those in London receive more due to higher costs) and your family’s income.

There are two different kinds of student loan. The first is a maintenance loan, which is there to help cover your living costs, such as your accommodation, food, and so on. You get more if you live away from home as you’ll be paying rent.

The maximum you can get from the maintenance loan this year (2019/20) is £8,944 if you live away from home and are starting university this September, rising to £11,672 if you’re living away from home in London.

If you live at home while you are a student, the maximum maintenance loan you can get is £7,529 this year.

Part of the maintenance loan (35%) is means-tested, so you might not get as much as the maximum if your family has a higher income. The below table shows the maximum you can borrow in England with each income bracket (note, these figures are estimates and taken from the student finance calculator at Gov.uk).

 

Household income

Maintenance loan

£25,000 or less

£8,944

£30,000

£8,303

£35,000

£7,661

£40,000

£7,019

£45,000

£6,377

£50,000

£5,735

£55,000

£5,093

£60,000

£4,452

£62,215 or above

£4,168

Isn't there a maintenance grant as well as the maintenance loan?

Unfortunately not anymore. The maintenance grant was scrapped by the government in 2016, which raised some concern that students from lower income families would be deterred from applying for university.

However, you can borrow more now than before so the total amount of money you will get hasn’t changed all that much, but you will leave university with a larger amount of money to pay back – although how much you actually repay will depend on your earnings (see below).

What about tuition fees?

As well as the maintenance loan, there is the tuition fees loan, which covers the cost of your tuition fees. You will need to start paying this back the April after your course finishes.

You can borrow up to £9,250 a year to cover the cost of fees, and unlike the maintenance loan, the money is paid directly to your university (to prevent you spending it on refreshments in the Student Union bar!).

The tuition fee loan doesn’t count towards course materials, so books, lab equipment, stationery, and so on, will have to come out of your own pocket.

Tuition fees cost up to £9,520 a year in England, £9,000 a year in Wales and £4,160 a year in Northern Ireland. If you study in Scotland and are from Scotland or the EU, you do not have to pay for tuition. 

How do I apply?

You can apply for your student loans online here: https://www.gov.uk/apply-online-for-student-finance.

You should get a loan declaration in the post around six weeks after you’ve submitted your application, which will confirm how much you’ll get.

Do I have to repay my student loans?

You’ll start paying back any loans as well as any interest the April after you finish your university course, but only if you are earning more than £25,725 a year (as of April 2019 – it was previously £25,000).

You’ll need to repay 9% of everything you earn above the £25,725 threshold each year. So, for example, if you earn £29,000 a year, this is £3,275 above the £25,000 threshold. That means you’d have to repay 9% of £3,275 that year, which comes to £294.75.

If you don’t earn over £25,725 then you don’t have to pay anything back, and if you never earn more than this, you’ll never have to pay the loans back.

What about interest?

Interest is added to everything you owe. While you are studying, this is usually charged at the same rate as the Retail Prices Index (RPI) in March that year plus another 3%.

The RPI rate in March 2018 was 3.3% so interest charged on student loans for the 2018/19 academic year was 6.3%.

After you have finished studying, you will continue to be charged interest on what you owe. If you are earning less than £25,725, interest will be at the same rate as RPI inflation.

The more you earn, the more interest you will pay. The rate rises slowly from RPI to a maximum of RPI plus 3% once you earn £46,305 or more (as of April 2019 – it was previously £45,000).

How do I make repayments?

You don’t need to worry about sending off payments every month as once you are working, your student loan repayments are taken directly from your salary before you get it.

Will my loans ever be wiped off?

Yes, any loan not repaid after 30 years is wiped off, so you may never pay it all off.

You can find out more about how to repay student loans at www.studentloanrepayment.co.uk

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