The key things to know about student finance (for schools and students)
Student finance applications are open (and they even have an online queue for users to visit the site at present - which I last spotted with supermarkets during the lockdown!).
Here I will go through the things I think schools need to know in order to provide great support to students - as well as students need to know to make great decisions themselves. Let's not forget - student fees and finance is the biggest barrier to university - pretty much everywhere you look. Including in our own National Review of University Guidance.
A credit before I start, Martin Lewis kindly provided fantastic content for our Teachers' Guide to University, so some of this is inspired by his fantastic work and editorial. You can read all Martin's thoughts in our Teachers Guide which can be accessed HERE. As well as read his full guide on the Money Saving Expert website.
Students only "pay" for their student loan when they earn over the student finance threshold
Students don’t pay universities or other higher education institutions directly. Tuition fees, usually up to £9,250 a year are paid for them by the Student Loans Company.
They will then only start repaying in the April after they leave university. But crucially they only need to repay if they earn over the student loan threshold which is currently £27,295 - and has been increasing year-on-year. Earn less and they don’t pay anything back.
They then repay 9% of everything earned above that threshold, so earn more and they repay more each month. The loan is wiped after 30 years – whether they’ve paid a penny or not. It’s repaid via the payroll, just like tax and doesn’t go on their credit file.
There is an official amount parents are meant to
contribute, but they are not told
Students are also eligible for a loan to help with living
costs – known as the maintenance loan. But what they actually get is dependent on several factors, the main one being household income.
So the calculation to work out the maintenance loan allocation looks at household income, usually that of the parents, and the missing amount is the expected parental contribution (between the maximum amount and the actual allocation). The gap can be explained as a parental contribution. But parents are not told that.
So when students get their letter saying what living
loan they will get, a student, or the parent, can work out the parental contribution by subtracting the loan from the maximum loan available (e.g. for 2021 and a student living away from home in London, they could subtract their actual allocation from the maximum available which is £12,382). Of course parents may not be able to provide support - but knowing there is a gap means a student can look at alternative ways to plug the gap if necessary - through part-time work, seeking scholarships and bursaries, or even raiding any saving pots!
The amount borrowed can be irrelevant – the system
works more like a tax
What a student repays each month depends solely on what they earn, ie from April 2021, it’s 9% of everything earned above £27,295.
Martin Lewis raised this in his great content for our Teachers' Guide to University. I have provided it again below. His example was for a graduate who earns £35,000 (and provided by him last year when the student loan threshold was £26,575). The threshold is now £27,295, but the example is still relevant...
- Owe £20,000 and they repay £758.25 a year
- Owe £50,000 and they repay £758.25 a year
- In fact, let’s be ridiculous and say tuition fees
have been upped to £1m a year, so they owe £3m+,
they still ONLY repay £758.25 a year
What they owe DOESN’T impact
what they repay each year. The only difference it
makes is whether they'll clear the borrowing within
the 30 years before it wipes.
It’s predicted very few - only the top 17% highest-
earning graduates - will clear it in time. So unless
students are likely to be a seriously high earner, they should ignore
the amount they ‘owe’.
Instead in practice what happens is they
effectively pay a 9% increased rate of income tax
(not including National Insurance) for 30 years. Again, in Martin's example, which was before the threshold increased to £27,295, and written when the threshold was £26,575, he provided the really handy table below:
The system can and has changed - keep an eye on it!
Student loan terms are not locked into law. So things can change - but changes usually take years.
So sadly all these explanations need the caveat of ‘unless things change’. But if they do, we'll ensure we are one of the biggest voices to tell you about it!