Student Loans: A Guide to University Debt

Student Loans - A Guide to University Debt

Unless you’re related to Richard Branson, or the Queen, or are the owner of a winning lottery ticket, you will probably have to take out (or have taken out) a student loan to pay for your university degree.

In 2012 tuition fees in England went up from around £3000 a year to £6000-£9000 a year.

Therefore a three-year undergraduate degree at an English university can now cost an eye-watering £27,000, for tuition alone.

So, along with living costs and books, the cost of a university education can really stack up. Most undergraduates will have to take out student loans just to make ends meet.

Before you take on this debt, or if you already have a loan – our myth-busting guide to student loans below will help you understand what you are getting yourself into.

10 Things You Need to Know About Student Loans

1. What Does A Student Loan Cover?

In the UK, there are two types of student loan (which are administered by the Glasgow-based Student Loans Company):

Tuition Fee Loan – UK and EU full-time and part-time students can take out a yearly loan to cover the full tuition fee. This is paid directly to your college and you must pay it back (more on when and how later).

Maintenance Loan – This is a loan to cover living costs (i.e food, books, accommodation). You can only apply if you are a full-time student in the UK and the loan amount is means-tested according to household income, and if you’re living in halls or with mum and dad.

Both types of student loan are for undergraduate study only, although there are loans available to those considering a Master’s degree. You can find more information about types of student loan here.

2. I’m Scottish! (or Welsh or Northern Irish!)

Scottish universities don’t charge fees. But before you pack your suitcase while whistling ‘I’ll take the high road and you’ll take the low road…’ It’s only free for Scottish students studying in Scotland. For everyone else, expect to cough up around £9000 a year.

Welsh students receive a grant to go towards their tuition fees, at any university in the UK. Northern Irish students pay up to £3805 a year to attend Northern Irish universities.

3. How Much Can I Borrow?

In England you can borrow:

  • Up to £9000 a year to cover tuition fees
  • Between £4565 and £8009 a year for living costs (all UK residents). How much will depend on whether you are living with a parents or in halls. You will receive more if you live in London.

Check out this Student Loans Finance Calculator to see how much you could borrow.

In Scotland, Wales and Northern Ireland the amounts may be different. You will need to go to your devolved government’s website to found out more.

4. When Do I Pay My Student Loan Back?

Don’t worry – the debt collectors won’t make you empty your pockets at your graduation ceremony.

You have to start paying back your student loans when you are earning £21,000 per annum (before tax) or over. If you earn less than this amount – which is probably true for many students fresh out of university – then you pay nothing. Zilch.

Now, if you don’t manage to earn more than £21,000 a year for the rest of your life – you will NEVER have to pay a penny. Also, student loan debt is wiped after 30 years. Hooray! Free money!

However, many of us will earn over this threshold, and will probably want to, so let’s look at how much you will repay when you start your working life.

5. How Much Will I Actually Repay?

Ok, you walk out of uni and land a job that pays more than the £21,000 a year. That’s when the Student Loan Company will come a-knocking.

But how much will you pay? The answer is 9% of anything you earn over the threshold of £21,000 per year. This is how you work out your monthly payment:

  • Take away £21,000 from your annual salary before tax
  • Work out 9% of the remainder
  • Divide this figure by 12 (months)

So for example:

If you earn £30,000 a year, take away £21,000 = £9000

9% of £9000 = £810

£810/12 = £67.50

So on a salary of £30,000 a year you will pay £67.50 each month to the Student Loans Company. Simple.

You can find more information about student loans monthly payments here.

6. How Do I Pay My Student Loans Back?

If you took out your student loan in 2012 or after and you are earning more than £21,000 per year your employer will calculate your repayments and it will be taken directly off your salary. You can find the amount on your payslip each month.

If you took out your loan before 2012 you can still pay through your salary (as above) but the earning threshold is lower (£17,335).

As the loan repayment is taken out of your salary before you get it – you won’t notice it. It will be like money you never had in the first place.

7. Shall I Pay My Student Loans Off All As Soon As I Leave University?

Although we normally advise people to pay off their debts, paying off your student loan in one go might not be the best way to use your free cash. Why?

  1. Because, you may have other debts such as credit cards, personal loans etc. In terms of interest, these cost way more than a student loan. Pay them off first.
  2. It might be better to use any extra cash to get on the housing ladder, which is very difficult nowadays.

But if you really want to pay the student loans off early, you won’t be charged a penalty.

8. What’s A Maintenance Grant? Can I Get One?

This is a grant rather than a loan so you don’t have to pay it back. It is designed to help student with their living costs.

The grant is means-tested and available only to those whose parents have a combined income of £42,620 or less. However, the Government is looking to scrap maintenance grants from 2016/17 and replace them with larger student loans.

9.Will My Student Loan Stop Me From Getting A Mortgage In The Future? How Will It Affect My Credit Rating?

No. Student loans don’t leave a ‘footprint’ on your credit file. So when applying for credit cards, mortgages and personal loans in the future, the only way a lender can find out if you have a student loan is if they ask you on an application form.

10. I Am Worried About Taking On So Much Debt – Help!

Stay calm. There is much media hype surrounding student debt, especially since the rise in tuition fees. However, a student loan is a debt unlike any other because:

  • You only pay it off when you are earning above the threshold (£21,000) and even then the repayments are minimal (and manageable, compared to other types of debt).
  • The payments are made via the payroll, so you won’t notice it coming off your monthly income in the first place.

Having a university degree is an investment in your future. If the repayments are managed properly, a student loan debt shouldn’t rule your life.

Your Turn…

What are your experiences with student loan repayment? Are you worried about getting student loans or are you worried about your children getting student loans? Drop us a line below and tell us all about it!

This post is part of the Debt Management series, you can read all posts in the series here.

Introduction to Managing Your Debt
What is APR: Get the Best out of Your Borrowing

(Photo credit: Got Credit)


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  1. Oh, man. Two things make me sad. That it only takes you three years across the pond, and that our prices over here are so darn high. It looks like maybe the outlook is a little better in Britain. Still stinks there was such a tuition hike for you, though. Love reading these as it expands my world view.

    1. Thank so much for taking the time to leave a comment. It sad to know that student loans are much higher in the States than in Britain.

      Looking at the bright side, it wise to take on student loans you can manage in order to avoid being overwhelmed with student loan debts after graduation.

      1. Absolutely! My husband and I are doing it sans student loans, but it took us quite a bit longer than your traditional college student.

  2. Oh my goodness, I totally get this is a real struggle for UK students, but the numbers here just make me laugh. Your degree could cost up to 27,000 pounds. That’s like… per year at a US institution and it takes longer over here. This is absolutely why I got my MA in Sheffield. It still cost half the price of a US institution even with living expenses and the exchange rate factored in and why I’m considering going back for my PhD.

    1. Hi Mel, thank you for taking the time to leave a comment and I hope you enjoyed studying at Sheffield university. I completely agree that student loans are much lower right here than it is in America. And the fact that it takes much longer doesn’t help matters.

  3. I hadn’t realised student loans had gone up quite so much! I didn’t actually go to uni so that was one debt I never had. Now though, I’m saving for uni for my daughter in case she wants to go but I don’t think I’ll be able to manage that much what with everything else I need to save for. Plus who knows how much student loans will have increased by in the next 15 years!

    I know what you mean about student loans not being the same as other forms of debt, but in my mind this is still debt and I really don’t want my daughter to have any! I suppose there are ways of working through uni to earn whilst studying…

    I do wonder whether the cost of uni is worth it when all is said and done. For example, I managed to work my way up into a good management position without a degree (before I left to have my daughter) and now I’m running my own business freelancing. I have seen plenty of people stuck in dead end jobs (or without a job at all) that have spent years at uni. I’m all for further education, but I believe you can still learn what you need to know to set you up for a great career without spending all that money.

    1. Hayley thanks for leaving a comment! You are lucky not to have had student loan debt which of course gave you the opportunity to start your career on a clean slate without a student loan looming over you.

      I totally agree that it is possible to work your way up into management positions without a degree, but there certain jobs you cannot take up without a degree or the right qualification. Also earning a university degree can of course increase your chances of getting a high paying jobs.

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