Student Finance: What can you borrow?

There are two types of student loan and one grant that are available to you whilst attending university:

  • Tuition Fee Loan – up to £9,000 per annum and this pays for your course. This is applicable for UK or EU full time students. Tuition fee loans up to £6,750 are also available to part time students.  This is paid in three installments throughout the year: 25% at the start of term 1, 25% at the start of term 2 and 50% at the start of the last term.
  • Maintenance Fee Loan (outside of London) up to £5,750 or £8,009 (in London) per annum. From 1 September 2016 the Maintenance Loan is increasing to up to £8200 per year if you’re studying outside London. If you are living at home, you are eligible to £4,565 per annum. The loan helps with living costs such as accommodation, books and bills. This is applicable to only full time UK students.

Collectively these are called an Income Contingent Repayment Loan (ICR). There are 2 different types, called Plan 1 and Plan 2, depending on where you lived when you applied to university and when you started your university course.

Plan 2: Applicable for students living in England or Wales, whose course started after 1st September 2012.

Plan 1: Applicable for all Scottish and Northern Ireland students and those English and Welsh students who started their course before 1st September 2012.

  • Maintenance Grants - these are available to full time UK students for their living costs. To qualify for a grant, you have to have a household income of less than £42,620. You do not have to pay back the grant, but any grant you are awarded will reduce the maintenance loan you can get.

The grants related to household income are as follows:

 Full-time student
Household income
Grant for courses from
September 2014
Grant for courses from
September 2015
£25,000 or less £3,387 £3,387
£30,000 £2,441 £2,441
£35,000 £1,494 £1,494
 £40,000  £5477  £547
 £42,620

 £50  £50
Over £42,620 No grant No grant

Student Finance Plan 2: How much will it cost you?

Plan 2 applies to all students living in England and Wales, whose course started after 1st September 2012.

What and when do you have to pay back?

You have to pay back 100% of your Income Contingent loan (tuition fee and maintenance fee).  You do not have to pay back the maintenance grant.

  • You start to pay back once you earn over £21,000
  • If your income drops below this amount, the repayments stop
  • Each month you pay back 9% on any income over £21,000

For example:

Your income per year Monthly repayments
£21,000 and under No repayments
£25,000 £30
£30,000 £67
£40,000 £142
£50,000 £217
£60,000 £292
  • If you leave the country, you still have to make repayments. These will be based on the earnings threshold for the country where you live.
  • Loans are cancelled and written off 30 years after you become eligible to repay.

Student Finance: Voluntary Repayments

  • You can repay some or all of the loan balance at any time
  • Such repayments are applied to the loan balance to reduce it.
  • You continue to make repayments at the statutory rate
  • The effect is to bring forward the date at which the loan is fully repaid and repayments cease

Student Finance: Interest on your student loans

  • Interest accrues and is applied on the loan from the time you receive the first loan payments (whilst at university) until you pay your loan back in full.
  • It is a myth that you don’t start paying interest until you start working or earn over £21,000. Interest is applied whilst you are at university and continues to be applied afterwards whatever your salary is.
  • For courses that started on or after 1st September 2012.

The following interest rates apply:

Income Interest rate
While your are studying Rate of inflation (Retail Price Index) plus 3% ( 5.5% for 2014/15)
£21,000 or less Rate of inflation
£21,000 to £41,000 Rate of inflation plus up to 3% ( 5.5% for 2014/15)
£41,000 and over Rate of inflation plus 3%
  • Interest is calculated and added monthly and is therefore compounded. This means that each month the % interest is applied to a slightly higher figure than you borrowed as the interest is added.  With RPI in the region of 1.1% - 1.6% this gives an interest rate of 4.1 - 4.6%.
  • You should note that these rates are significantly higher than for those students on plan 1, which are paying an APR of 1.5%. (Scottish and Irish students and those on courses before Sept 2012)
  • This is not particularly  ‘cheap’ borrowing.

Example of what interest accrues on your loan whilst at university

  • While you are at university, your loan will accrue interest
  • The rate of inflation for 2015/16 is 1.1%, so on average you will be paying 4.1% interest on your loans (as its applied monthly, it actually equates to a higher annual interest rate.)
  • If you borrowed £14,500 each year, (a total of £43.500) for example, then at the end of a 3-year university course, you would owe £47,625 (assuming inflation was at c1.5%) because of the accrued interest of £4125.
  Tuition fee borrowed Maintenance fee borrowed Total borrowed Interest (APR) at 4.6% Total borrowed plus interest
 Year 1  £9,000  £5,500  £14,500  £667  £15,167
 Year 2  £9,000  £5,500  £29,667  £1,365  £31,031
 Year 3  £9,000  £5,500  £45,531  £2,094  £47,625
  • The interest rate remains at RPI + 3% until April 6th of the following year after you graduate, irrespective of whether you are earning above £21,000.

Example of Interest on your student loan whilst you are working

  • Once you earn above £21,000, each year you will be charged interest of RPI plus 3% on your loan. (Below £21,000, you are charged an interest rate of RPI only)
  Assumed salary Your annual payments at 9% Total borrowed Annual interest at 4.6% Total borrowed plus interest
 Year 4
 £27,000 £540 £47,085  £2,166  £49,251
 Year 5
 £28,000 £630 £48,620  £2,237 £50,857
 Year 6
 £30,000 £810 £50,047  £2,302 £52,349
 Year 7 £35,000  £1,260  £51,089 £2,350  £53,439
 Year 8  £40,000  £1,710  £51,729  £2,380  £54,109
 Year 9  £45,000  £2,160  £51,948  £2,390  £54,338
 Year 10  £60,000  £3,510  £50,827  £2,338  £53,165
  • If RPI were at 1.6% then the interest rate would be 4.6%. On a loan of £47,625, this would equate to an annual interest of £2,191, once you have paid back 9% of earnings above £21,000.
  • The example above shows what you would have to pay back and what you would accrue in interest at certain notional salary levels.
  • As you can see, interest accrues significantly each year.
  • As the above table shows for example, if you are earning £35,000, you would be making annual payments of £1260, but interest would be accruing at £2,350. Your debt therefore gets larger every year.
  • You need to be earning over £50,000 to actually start to stop your debt actually growing every year. At this salary level, you would still only be paying the interest back. (It does of course depend, how much loan you took in the first place).

Student Finance: Other issues

  • Your student debt will generally not be taken into account when applying for a mortgage or loan, but the repayments will reduce your income. This in turn will reduce the amount a lender will lend to you. Generally mortgage company’s work on the basis of looking at your income againt your borrowings and outgoings.
  • The repayment terms of the existing loans can be changed – there is no guarantee of the current rates.  So future governments could decide to extract higher returns. The contract you sign commits you to ‘repay your loan in line with the regulations at the time and as they are amended’.
  • The government could actually ‘sell’ its student loan book to the private sector. This may have the effect of putting interest rates up. 

 


 “In summary, be very wary of plan 2 student loans, and do not take them out if you do not need them – they are not cheap money. If you do need the financing, take as little borrowing as you can survive on.

It would be better to work during your university years and endeavour to subsidise yourself in this way. The student loan is a ticking time bomb for you for years to come, and will accrue increasing levels of interest each year as you potentially struggle to pay it off. “


Student Finance: Plan 1: How much will it cost you?

Plan 1 is applicable for all Scottish and Northern Ireland students and those English and Welsh students who started their course before 1st September 2012.

What and when do you have to pay back?: You have to pay back 100% of your Income contingent Loan. Plan 1 however, has a significantly lower interest rate than plan 2 and can vary from year to year (currently and APR of 1.5%). Each month you pay back 9% on any income over £16,365 (a lower threshold than plan 2 students).

Applying for Student Finance (for English students)
If you wish to apply for student finance...CLICK HERE

The deadline for applying is 9 months after the start of your course. To get your money in time for the start of the university year, new full time students need to apply by 31st May and continuing full time students by 28th June.

You do not need a confirmed place at university or college to apply.  

For Scottish students, to apply...CLICK HERE

For welsh students, to apply...CLICK HERE

For student from Northern Ireland, to apply...CLICK HERE

 

Student Ladder