The Truth About Student Loans

About 700,000 students are applying to study at University at courses which start in September. Generally it costs about £9,000 per year for the course and maintenance loans - the money students are designed to live off for accommodation, food, books and partying, is around £10,000.To fund it all student care now applying for student loans. So how do they work, should you get them, when do you need to pay them off and what do you need to know.

Q: How is a student loan different from any other kind of loan?

A: Student loans and how they’re repaid works differently from other types of borrowing. For example, you will only repay when your income is over a certain amount and if you have an outstanding balance at the end of your loan term, it will be written off.

Your monthly repayments are based on your income, not how much you borrowed.

A student loans does not appear on your credit file and your credit rating is not affected.

So it might be better to think of a student loan as a graduate tax. It is deducted straight from your salary and comes off the pay pack in the same way as a tax does

Q: How does the student loan work?

A: There are 2 elements to the loan: a tutition fee element and a maintenance element.

• The tuition fee element, which is equal to the annual cost of your course up to £9,250 per year.
  

• The maintenance loan is intended to cover accommodation, food, books and equipment. Maintenance loans are means-tested, so the amount you get depends on your family's household income. You might get extra money if you are disabled or have children.

• The level of maintenance loan is based on a combination of you and your parents income, The calculation is a bit complicated but roughly if the total income is around £50,000 or less you can get a full maintenance loan, above that level, the maintenance loan falls gradually. You can see more details here.

The maintenance loan is worth £10,227 outside London and £13,348 in London.

• In Scotland, the maximum annual maintenance loan is £9,400
  

• In Wales it is £12,150 in Wales
  

• In Northern Ireland it is £6,776

The tuition fees are paid directly to your university or education provider.

The maintenance loan is paid directly to your bank account in instalments..

Q: Do I have to be British to get the student loan?

You can apply for tuition fee funding if you’ve been living in the UK, the EEA, Switzerland or the overseas territories for the past three years and you have:

• pre-settled status under the EU Settlement Scheme or have temporary protection under the Withdrawal Agreements which may be evidence through a certificate of application, and are an EU national or a family member of an EU national

• Irish Citizenship and were resident in the UK by 31 December 2020, or are a family member of an Irish Citizen or Person of Northern Ireland and you have pre-settled status under the EU Settlement Scheme

• Resident status in Gibraltar as an EU national or a family member of an EU nationa

Full details here

Q: How much has the government lent out in student loans?

A: The value of outstanding loans at the end of March 2024 reached £236 billion. The Government forecasts the value of outstanding loans to reach around £500 billion (2023‑24 prices) by the late-2040s.

Q: How much debt do I build up?

A: The forecast average debt among the cohort of borrowers who started their course in 2022/23 is £45,600 when they complete their course.

Q: When Do I Repay The Loan?

A: You start repaying your student loan is the April after your course has ended, or the April four years after your course has started, if your course is longer than four years.

However, you won't repay anything until you're earning above a certain amount.

Q: What is the interest rate on student loans?

The latest loan scheme have an interest rate set at the rate of inflation. This was over 13% in 2023 and as a result the Government stepped in to cap the interest rate. The cap has increased during the year and was 7.9% in July 2024. The caps will now be reviewed every month.

For courses in:

Wales, the rate is capped at 7.8%, external

Scotland, it is 6.25%, external

Northern Ireland, it is 6.25%

There are different student loan plans - the plan you are on depends on when you started your loan. Depending on which plan you are paying back, many of those who already are on loan schemes and are completing an undergraduate course, they will be paying 9% of their income over the repayment threshold, which will be £25,000 a year. 

Agaiun,the details vary on which plan you are, but those completing a postgraduate course will pay 6% of their income over £21,000.

You only pay the extra percentage on the amoutn over £25,000. Average income in the UK is just under £35,000/year. So if you were earning that and had an undergraduate loan, you would pay 9% on £10,000 - which is £900/year.

If you earn less then you don't have to pay anything. The £25,000 threshold is frozen until 2027. If you never earn over that amount or havent paid it back over 40 years, the loan is forgotten and you don't have to pay it at all. But that does mean that you will carry the loan into your 60s.

Q: How many student never repay their loans?

The Government forecasts that around 65% of full-time undergraduates starting in 2023/24 would repay them in full. So 35% wouldn't pay them off in full. The repayment levels more than double the forecast for the 2022/23 cohort (27%) because of reforms to student loan repayments for new students.

Q: When do I apply for my loan?

A; You do not need a confirmed place at university to apply. You can cancel or change your application before the start of your course.

The Student Loans Company suggest students apply by 17 May to "guarantee their student finance will be in place for the start of the academic year". However, you can still apply after the first day of the academic year for your course.

• The Student Loans Company, external processes all applications for students in England and Wales

• Students in Scotland apply through the Students Awards Agency Scotland, external

• Students from Northern Ireland apply through Student Finance Northern Ireland.

Q: How big can the debt get?

A: The highest outstanding student debt in the UK is more than £230,000, according to data obtained by BBC News through a Freedom of Information request to the Student Loan Company,. The largest repayment a graduate has made tops £110,000, the figures show, with another loan holder accumulating interest alone of nearly £55,000.

Q: I've heard some say I should get the maintenance loan even if my parents are paying and put the money in an account.

A: The University fee is paid directly to the university - so you won't get the cash yourself. You would get the maintenance element into your bank account. But you would pay 7-8% in interest and would find it hard to get that back from a savings account. If you never earned over the minimum in come threshold, you might be able never have to pay off the loan and could make a return on the interest you have earned - but it is a very risky strategy

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