Unlike the United States and other countries that issue private student loans, all student loans in the UK go through the Student Loans Company (a non-profit owned by the Department of Education). This is true regardless of the University or course you choose, though there are individual subsidiaries depending on if you are applying from England, Northern Ireland, Scotland, or Wales. The organisation also handles the loans to students coming from the European Union.
For fulltime students there are two types of loan available, one that covers your course (issued for each year of your course rather than one lump sum), and one that helps you cover living expenses if you meet certain terms.
You are only required to repay student loans when you earn over a certain amount, and the amount you pay each month in instalments is determined by how much your earn over the threshold. This is much different from a regular loan that is based on how much you borrow.
Interest is also charged on student loans but does not interfere with the minimum earnings threshold or the amount you must pay in instalments.
How Much You Can Borrow
New fulltime students for the academic year of 2017 to 2018 can borrow up to £9,250 to fund their course. This is called a Tuition Fee loan.
The amount you can borrow as a Maintenance Loan (for living costs) depends on your living situation. If you are living at home with parent(s) you can borrow up to £7,097. If you choose to live away from home in a shared house, flat or student accommodation you can borrow up to £8,430. Due to rent prices this jumps to £11,002 if you are in London. If you are studying for a year abroad as part of a UK course, you can borrow up to £9,654.
The Maintenance Loan is intended to help you cover rent, food and bills, supplies for Uni (books etc), and other day to day costs that you would usually fund with a job. Nobody however will check what you spend it on, so in theory you can also waste it on partying. Many students will take out a part time job to ensure they have enough money to fund living and leisure while at university.
You do not have to pay back any part of either type of student loan until you earn over £21,000 in the financial year from employment or self-employment. The more you earn, the more you are required to contribute. After 30 years the entire debt is wiped, regardless of how much you still owe. In action many people will never have to pay back their student loans in full, so scare stories of crippling student debt are not being entirely honest. It’ more practical view repayment of student loans as an income tax rather than a debt.
Let’s do some math. If on average you earn £41,000 after graduating university, over the 30 years you will have repaid £54,000 for tuition fees. Around £38,900 will be completely wiped.
At the moment the percentage you pay on earnings over £21,000 is 9 percent. So if you just broke the threshold and earned £22,000, you would only be required to pay 9% of £1,000 each month – a measly £90.
When we look at it objectively the UK education system is one of the most accessible and affordable top flight systems in the world, because there are no costs to pay upfront and you only begin to repay when you are earning a reasonable amount. Graduates on average earn more than those that didn’t go to university, so they can afford a certain contribution and help support the next generation of students.
1) Student loans do not go on your credit report and therefore do not impact your ability to obtain commercial credit. The only exception is that mortgage lenders are allowed to ask if you have an outstanding student loan.
2) No matter what your situation you will never have to pay upfront. Even if you have the money to do so, or if you want to repay early (which you can), you may be better off financially not doing so.
3) Elderly students can learn for the sake of learning and generally will not have to worry about repayment. If you’re 60 and there was a subject you really wanted to sink your teeth in to, doing it now is worthwhile.
4) Even if for whatever reason you run away from repaying your student loan, the law states that debt collectors cannot come after you. However if you are in employment repayments may be taken directly from your salary.
5) Part-time students and post-graduates are also eligible for loans of lesser amounts.