Martin Lewis from MoneySavingExpert.com is back with some excellent, up to date info on student loans. Read below for a summary of his guide for future students and their parents, or anyone who's not too savvy when it comes to the student loan small print.
1. Student loans can add up to £50K, but that's not the price you'll pay back:
At undergraduate level, students with finance don't pay the universities directly – the Student Loans Company sort this out for them. Over three years, this adds up to just under £50K, but that's not all you'll (maybe) be paying back.
Head here for MSEs full guide to loan repayment.
2. They expect parents/carers to contribute a certain amount, but won't actually tell you this:
As you might well know, student loan comes in two parts: tuition fees and maintenance (living) loan. Tuition fees are paid to your university without you ever seeing them, but maintenance loans are paid straight to you to hypothetically help with living costs. Score!
In the current system however, unlike tuition fees which are always paid in full, the maintenance loans are "means tested". This "means" that, even if your parents can't or won't fork out a single penny towards supporting you, the amount you get depends entirely on your family's household income.
Your parents earn anything over a combined total of £25K? Down goes your loan total. And this continues up to the £60K mark, where you'll get half of the maximum amount.
What they don't tell you is that the reduced amount is expected to be contributed by your parents. Whether or not parents can afford it is another matter, but it's worth talking about.
The easy way to work out how much parental contribution is expected is to minus the amount you're offered from the maximum (£7,097 if living at home, £8,430 if living away, £11,002 if living in London). Your parents may be able to help out, they may not, but you need to be aware of your funds so you can do the boring adult task of budgeting.
3. It doesn't really matter how much you borrow, because you pay it off like a tax:
Your monthly repayments depend entirely on what you earn (and are calculated as 9% of all earnings about £21K) and what you owe makes no difference.
The only difference loan size makes is on how close you'll get to clearing it before it's wiped at the end of 30 years. And don't get too caught up worrying about that, because The Institute for Fiscal Studies estimates that only the highest-earning 23% of graduates will pay this off anyway.
So unless you're the new Alan Sugar, forget about the amount 'owed' – the reality is that you're just paying more tax for 30 years that non uni-goers would.
Don't forget though, like with tax, those making the highest repayments are usually the ones earning the most.
4. Your loan total will have interest added, (headline rate is 6.1%) but chances are you won't pay it:
The rate of interest on a student loan is based on inflation rates, which measure the speed of price increases. The rate changes every September based on the Retail Prices Index (RPI) measure from the prior March (which was 3.1% last March).
We know this sounds a bit dire but it's important to vaguely understand, even if you won't be whipping the knowledge out on pub quiz night.
This is how the rate is set:
People get confused here, thinking that students are paying back 6.1% interest. And that's not the case, as 6.1% is the amount added to what you already owe. But as we've said, that can be as high or as low as you (or your university) like, but that won't usually change how much you repay.
Interest only makes a difference if you pay off everything you borrowed in the first place within the first 30 years after uni. The majority of people won't, so really, the loans become interest-free. Even those who do pay it all off will struggle to come close to repaying the interest, so it's not worth worrying about.
5. This all can be (and has been) changed:
Student loan terms aren't currently locked into law, which means that sadly they can be changed (and often for the worse) even after you've started uni. It's not particularly fair that the rules of the game change after you've started, but that's the way it is right now.
Because of this, all of the above info has to come under the category of "unless things change in the future".
And these changes do happen. Take this month for instance: until now, the repayments had been set once earnings reached over £21,000 a year. PM Theresa May has just announced plans to increase this to £25,000, and promises to freeze tuition fees at their current maximum of £9,250.
This is a step in the right direction, but just goes to show that nothing's as stable as we'd like. Things are open to change. So, as always, watch this space.
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