Understanding student finance

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With a new intake of students heading off for Freshers’ Week, another round of families will grapple with the prospect of financing higher education. For parents and students alike the headline costs can seem daunting.

Most students of in England, Wales and Northern Ireland now need to take out loans to cover both tuition fees and living costs. In many cases interest is added to these loans while students are studying, with an average debt of £45,000 for graduates finishing in 2020.

This figure can be misleading, however, as the way these loans are structured means most graduates will never repay this amount in full, so the ‘cost’ of a university education is far less.

Graduate tax

Student debt is actually more akin to a graduate tax, with graduates on higher salaries paying more. Students in England, Wales and Northern Ireland will only start repaying their tuition and maintenance loans once their earnings reach a certain level — currently set at £27,295 a year. (This threshold is lower in Scotland —see below for key regional differences.)

Under the current Student Loan scheme, graduates pay 9% of their earnings over that level once earnings breach the limit. For example, those earning £30,000 a year pay 9% of £2,705, a total of £243.45 for the year, taken in monthly instalments from their salary. However a graduate earning £60,000 would be looking at a more substantial annual repayment of £2,943.45.

Outstanding debt is cancelled after 30 years. Current projections suggest 75% of students will not repay their loans in full, so paying off part of a loan that will not reduce monthly repayments and could subsequently be cancelled may not be the best use of funds.

What can you borrow?

  • Tuition fees loan: All prospective students (in England) can apply for a loan of up to £9,250 a year to cover tuition fees This is paid directly to the university at the start of each academic year.
  • Maintenance loan: Students in England can apply for a maximum of £9,488 (£12,382 in London) to cover living costs if they are studying away from home. However this is a means-tested loan. Families with a combined household income of £70,000 receive just £4,422 with parents expected to make up any shortfall.

Regional differences

The rules differ within the UK depending on where you reside.

  • Scottish students don’t pay tuition fees if they study at a Scottish institution. Students can apply for a means-tested student loan and bursary to help with living costs. The threshold at which repayments are made varies depending on when loans were made. It is now set at £25,000 for loans taken out after 6 April 2021.
  • The maximum annual tuition fee for Welsh students studying in Wales is £9,000. Maintenance loans and grants are available. As in England, these loans are only repaid once earnings reach £27,295.
  • Northern Ireland residents studying in the country pay a maximum £4,530 in tuition fees. A similar system operates for maintenance loans – however all outstanding debt is cancelled after 25 years.

 

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