Sort out your student finance now
Soon, thousands of prospective students across the UK are off to university open days to try and work out where they want to go in 2016. Yet last week the Chancellor threw a spanner in the works by announcing the end of student grants from 2016. So our Money Saving Expert, Martin Lewis – former head of the Independent Taskforce on Student Finance Information - is here to explain what it all means.
How do student loans work in practice? Many are worried about huge debt. Many worry about new debt, in fact, for new students starting in 2016 – those at open days now – as the loans for living are being increased, it’s possible they could leave with over £60,000 of student loans.
Yet much of this worry is unnecessary. In fact, I would argue that these aren’t really loans at all – they’re closer to being a tax – and it’s about time we renamed them a ‘graduate contribution’, which is what other countries call our system. I’m meeting the Universities Minister this week, and that’s one issue on my agenda.
Anyway, here’s what you need to know about how the current system works:
You don't pay for university upfront. Fees, which are almost all £9,000 a year for full time students now, are paid for you and you also get money for living costs.
You repay this loan once you've left, but only if you earn £21,000 or more.
You repay 9% of everything above £21k. The more you earn, the more you repay monthly.
The loan's wiped after 30 years – whether you’ve paid a penny or not – most people will be repaying for the full 30 years.
The loan doesn't go on your credit file.
Interest is added to the loan at inflation + 3% while studying, and between inflation and inflation + 3% afterwards, depending on what you earn. Though you would only actually repay this if you earn enough afterwards to clear what you borrowed in full.
See Martin’s full 20 student finance mythbusters for more.
What are the changes to student grants? Currently, if you come from a family with income under £42,620, then some of the maintenance loan you get (money for living) is replaced by a non-repayable grant. If your family income is under £25,000, then you get the maximum grant, meaning £3,387 of your loan is replaced by a grant (though that still leaves an additional part as a loan).
For new students starting in September 2016 onwards, this grant is scrapped (those who start university before then still get it), and all of the amount you get is as a loan. While this seems bad, it isn’t as awful as it sounds. The only people who actually pay more are very high earners, because only they would have repaid their loan in full within 30 years. On my calculations, that’s those on starting salaries of way over £30,000, which rise above inflation after.
And perhaps more importantly, the loan has actually been increased. This is useful as the current amount is frankly a struggle for some just to cover basic living costs. For example, the maximum loan for those living away from home, outside London is currently £5,740/year, but this’ll rise to £8,200/year under the new system.
The system works differently if you’re not an English student. Both maintenance loans and tuition fees differ for non-English students. Scottish students in Scotland don’t pay for tuition fees,Northern Irish students studying in Northern Ireland pay a fixed price of £3,685 in 2015, while Welsh tuition fees are £9,000 but the Welsh Government subsidises this for Welsh students, so they only borrow £3,685 in 2015.
For those crossing borders it gets complex, so do check the Student Awards Agency for Scotland, Student Finance NI, and Student Finance Wales.
How do I apply for finance?
If you’re English and going to uni this year, you should’ve already applied for finance. But if you haven’t, you can apply up to nine months after your course starts, it’s just likely you’ll be delayed in receiving it. For those going next year, you don’t need to apply yet. To apply, go to Student Finance England or the links above for other countries. Be aware Northern Ireland, Scotland and Wales may have different deadlines.
Are the terms of student loans fixed?
They should be, yet the government announced in the Summer Budget 2015 that it is considering freezing the amount you start repaying from at £21,000 – it was due to start rising with average earnings from April 2017. This is effectively a retrospective price hike and will cost many students more.
I have been campaigning against this – and thankfully we believe this has put the Government off doing it and instead it’s consulting on it. This is the main reason I’m going to meet them this week.
I started uni before 2012. How much will I repay on my loan?
For those who started uni between 1998-2011, you’ll repay 9% of everything earned above £17,335 a year. Those who started before 1998 will make repayments once they earn over £26,727 per year – most of these students will pay their loan in 60 instalments.
Catch up with the last seven days of This Morning on ITV Player