Unless you’re lucky enough to have some financially well-off benefactors (Sebastian Valmont-style) or gain a scholarship (Max Fischer-style), then the chances are you’ll end up going down the student loan route. For many, leaving higher education with a student debt figure of around £57,000 might be enough of a deterrent to stop them from applying in the first place. But before you cancel your UCAS application, #publically-renounce your desire to study on Twitter and take a vow of silence, hold up. Much like the oft-misrepresented government deficit (or government loans to an average Joe), student loans are not as bad as they might seem. Misrepresentation in the press (plus some genuine miscalculations by the government) has caused some level of confusion around student loans; today we’ll discuss the basic principles of the system.
What Are Student Loans?
In England, student loans are loans paid to you and on your behalf to your institution of study by the Student Loans Company (SLC). While studying at 6th form/college, you’ll most likely start your student finance application. SLC is a government-owned organisation that provides grants and loans to students in the UK. Rules for Scotland, Wales and Northern Ireland differ. Check the links for more information on studying in the UK (outside of England).
The UK government works with Student Finance England (SFE – a government-run student financial specialist department) to assess how much each candidate is eligible to receive; SLC then provides the amount to the student in the form of a maintenance loan. SLC also pays the higher education provider directly for the candidate’s tuition fees. SFE and SLC are, in fact, one overarching organisation, and students can apply for student finance directly on the gov website.
How Much Can I Receive?
Tuition fees are currently capped at £9,250 (2017/2018). Tuition fees can be claimed via the student finance application regardless of household income. Maintenance fees, however, are dependent on household income (this is assessed either online or through the PFF2 form and a CYI form that your parents or guardians complete during the application process). You’ll need to provide proof of the combined household income when completing your student finance application on the gov website.
Let’s look at a quick example of an average student studying in London:
Tuition fees: £9,250 (per year)
Household income: £26,300 (UK Median 2016)
Maintenance Loan: £10,842
Total yearly loan: £20,092 (plus inflation interest rate, plus an extra 3%)
Be sure to check out the student loan calculator to find out what you can expect to receive, and check out the student loan repayment calculator to understand what you could end up paying back and how long it will take.
When Do I Start Paying Back?
Student loans are paid back via an income contingent repayment plan; this means you don’t start paying back until you start earning a specific amount of money. As of the academic year 2017/2018, the lower threshold for repayment is £25,000; this means that you won’t begin paying back your loan until you start earning over £25,000; unfortunately, the interest on the loan will continue to build regardless.
Let’s take our average student above as an example of a typical payment plan. We’re assuming the graduate studied for three-years, found a job straight out of university and works continuously until the debt is paid off.
Loan at start of repayment: £64,202 (including £3,926 interest added over the course duration)
Total amount repaid: £81,286
Repayment time: 30 years
If you work for a company, you’ll automatically start paying your loan back as you start earning over the threshold; if you’re self-employed, you’ll pay back your student loan along with your tax return.
SLC has come under scrutiny in recent years as a series of blunders and miscalculations have left some students up to £10,000 worse off. Regarding the error, SLC and HM Revenues and Customs (HMRC) have been pointing the finger at each other in an attempt to avoid criticism.
HND Insider’s student finance advisor Laura told us:
“It’s somewhat of a bureaucratic nightmare; SLC, SFE and HMRC are all branches of the UK government, yet two appear to be in a public spat. It’s not the most professional way of going about your business. It also doesn’t fill students with confidence that they’ll be paying back the right amount, but there’s no real alternative. That’s why we advise students to keep an eye on their repayments and make sure the sums add up.”
Need more advice on student finance? Contact HND Insider for free, impartial advice on your financial options.