Update 16 Dec 2012: I’ve had a few emails asking if this info is relevant to students starting in September 2013. I can confirm that it is as all the new changes to tuition fees, maintenance loans, maintenance grants etc. that have had so much press in the last years are valid for all students starting their studies from 1st September 2012 onwards so read on…
As it’s the day of the student protests over tuition fees in London (9th Nov 2011), I thought I’d write a bit of an overview of the whole student tuition fees and student loans situation for those students starting at university in 2012 (and 2013, it’s the same). Firstly though, it’s important to say that I am not a financial expert and these are just my own views. Secondly, this article mainly covers the situation in England. Scotland, Wales and Northern Ireland have some different rules.
The new tuition fees from 1st September 2012 onwards
Let’s get the obvious out of the way first; the government is cutting costs and one of their cost cutting measures is the amount of money they are giving universities to run their courses. They are cutting the money they put into our education and, as such, are arguably risking the futures of the young people of this country. Put simply, the government’s funding of universities is basically frozen, but to allow universities to fund themselves they have allowed them to raise their tuition fees. Under the current, old system, universities could charge a maximum of £3,375 a year. The new system allows them to charge up to £6,000 a year, with some allowed to charge up to £9,000 a year providing they make more money available for bursaries for poorer students.
These new tuition fees look very high; you could be paying up to £27,000 a year just in tuition fees! However, let’s get another thing straight, you don’t have to pay these fees upfront. You don’t have to find £27,000 from somewhere and give it to the university you are going to. You will choose a university to apply for as usual, and then when you are accepted by that university and start there in September 2012 or 2013, a special Student Loan Company will pay your tuition fees each year upfront for you. They loan you the money basically and you only start paying it back when you start earning more than £21,000 after you graduate. From the 1st September 2012 onwards the maximum tuition fee loans are:
|Student type||Tuition Fee Loan|
|New full-time students||£9,000|
|New full- time students at private university or college||£6,000|
|New part-time students||£6,750|
|New part-time students at private university or college||£4,500|
Student maintenance loan from 1st September 2012 onwards
That’s OK, but how will you live, you can’t live off of the tuition fees as you never see this money, it goes straight to the university. To cover your living costs, students can also apply for an extra maintenance loan from the Student Loans Company which will be paid into your bank account for you to use to cover your living costs. Everyone can apply for up to 65% of the maximum living costs loan (this amount changes according to where you live and study), the remaining 35% is allocated based on your parent’s income. From the 1st September 2012 the maximum annual maintenance loan is:
|Where you live and study||Maintenance Loan|
|You live at home||£4375|
|You live away from home and study outside London||£5500|
|You live away from home and study in London||£7675|
|You spend a year of a UK course studying overseas||£6535|
Student maintenance grants from 1st September 2012 onwards
If your family’s household income is under £42,600 you can also apply for a student maintenance grant. This is basically money that the government will give poorer students to cover their living costs whilst they are studying. Full-time students with a household income of less than £25,000 can get a grant of £3,250 which never needs repaying. However, if you get this grant, you can’t get the maximum student maintenance loan, they reduce the maximum amount you can borrow by a little less than your grant.
Households on £25,000 to £42,600 can apply for a smaller grant based on their household residual income:
|Full-time student – household income||Grant for courses from September 2012||Grant for courses from September 2013|
|£25,000 or less||£3,250||£3,354|
|£42,600 (2012) or £42,611 (2013)||Up to £50||£50|
|Over £42,600 / £42,611||No grant||No grant|
There is also a Special Support Grant available, you can learn more here..
Paying back your student loans
So basically you are going to be borrowing the money to cover your years of study as a university student from the Student Loans Company (the government basically). They are going to loan you the money for your tuition fees and pay this straight to the university, you are then going to apply for a second loan from the same Student Loans Company to cover your living costs like food, rent and booze (you might also offset this maintenance loan by applying for a maintenance grant which you won’t need to pay back). The whole amount that you borrow is lumped together into your student debt, but you only have to start paying this back once you have graduated and are earning over £21,000 per year.
This is where some people will argue that the new system is a better deal for some students. Basically, the current threshold for graduates to start paying back their loan is £15,000. They start paying back 9% of everything they earn above £15,000. Under the new system, you don’t start paying anything back until you are earning over £21,000, that’s £6,000 more than the current system. You will pay back 9% of your income over the £21,000 before tax. For example, your course starts in September 2012 and you finish in June 2015. In September 2015 you’re earning £25,000. This is £4,000 over the £21,000 threshold. You pay 9% of £4,000 which is £360. This means from April 2016 you pay back £30 per month. Here is a table of the monthly repayments you could make:
|Your income per year||Monthly repayments|
|£21,000 and under||no repayments|
You are also charged some interest on your loan, so your debt does technically increase. The interest is charged from the time you get your first payment, when you start university basically:
|Your income per year||Interest rate on your loan|
|while you’re studying||Rate of inflation plus 3%|
|£21,000 or less||Rate of inflation|
|£21,000 - 41,000||Rate of inflation plus up to 3%|
|£41,000 or more||Rate of inflation plus 3%|
Student loan repayment calculator
The independent taskforce on student financial information have made the calculator below so you can work how much in total you could be paying back:
What does this boil down to?
Basically, under the new system you won’t start paying back any of your student loan until you earn £21,000 or more. For every pound you earn over £21,000 you will be pay back 9% or 9p. This carries on for thirty years, and then the loan is wiped off, it’s cleared, so if you never earn more than £21,000 you won’t pay back one penny. However, if you earn over £21,000 a year for those thirty years then you will be paying back 9% of your salary over £21,000, probably for the full thirty years or at least until your debt clears.
You need to think of this new system as a tax, if you go to university, you will be paying an extra tax straight from your pay once you graduate and earn over £21,000.
Pros and cons
- You never pay your student loan back if you never earn more than £21,000 in the thirty years after you graduate (this was previously £15,000).
- You will be paying back less per month as the threshold is now higher.
- After thirty years your debt is wiped out. Most people will probably never pay the full amount back.
- Whether your tuition fees are £6,000 or £9,000 the amount of your monthly repayments will be the same 9% above £21,000.
- Student loans don’t go on your credit file, so they don’t affect your future credit score.
- Interest is charged on your loan at above the inflation rate, which in turn will extend the loan period. You’ll be paying the loan back, but the loan will be increasing as well.
- It will take much longer to repay your loan. The threshold is higher so you pay back less per month and you accrue interest from the moment you take the loan.
- Currently it looks like you won’t be able to repay your loan early should you have the money to do so.
Going to university is going to be more expensive, that’s a fact. You’re going to be borrowing more money and it’s going to take you longer to repay it. On the flip side, when you do start paying your massive debt back you are probably going to be paying less per month than the current system.
Is it worth it? I don’t know, but probably it is. Graduates tend to earn more than non-graduates and, let’s face it, university is a good laugh and a truly life changing experience for most people. All I can suggest is that you read as much as you can about the financial situation and sit down and decide if it’s for you. I don’t see these fees changing any time soon even with all the protests in the past, today and in the future. Students protested in the 90’s and tuition fees still came in and have risen ever since.
Note: Whilst not totally pro the new tuition fees, these video guides do lean to the favourable side of the argument:
Here is a suggested list of further reading to give you an overview of the new tuition fees and student loans:
Free student fees 2012 pdf – a guide to the new fees
Independent Taskforce on Student Finance Information – Helping students in England understand the cost of their education
The 20 key facts on fees, loans & grants everyone should know – Money Saving Expert
Directgov – Student loans for courses starting after 1 September 2012
Directgov – Paying back your student loan: courses starting after 1 September 2012
Directgov – Student grants for courses starting after 1 September 2012
Shortage of university places – This has some ideas on what to do if you don’t want to pay the new fees as well some other ideas about what you could do instead of going to university…
Apprenticeship or Degree? – Maybe you could do an apprenticeship instead of going to university…
Study abroad – Beat the tuition fee increase by studying abroad, The Netherlands is a very nice place…