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 had planned 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 was 11 May, for Northern Irish students it was 12 April. In Scotland, students had until 30 June.

But don't despair if you haven’t got 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.

Even if you have already started your uni course 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 bit 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 (2020/21) is £9,203 if you live away from home and started university this September, rising to £12,010 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 £7,747 this year (2020/21).

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 government’s maintenance loan calculator can give you an idea of what you might be able to get.

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.

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 from the April after you finish your university course, but only if you are earning above a certain income threshold.

This threshold changes in April each year and when and how much you repay depends on when you started your course, the type of course and your income, among other things. More details can be found on the government’s student finance pages.

If you don’t earn over the income threshold for repayment 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 each year plus another 3%.

After you have finished studying, you will continue to be charged interest on what you owe.

The more you earn, the more interest you will pay. The rate rises slowly from RPI to a maximum of RPI plus 3% for those in the highest income categories.

If you are earning less than the income threshold to repay interest will be applied on your debt at the same rate as RPI inflation – but you will not need to make repayments until your earnings are at or above the income threshold.

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.gov.uk/repaying-your-student-loan

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