26 June 2017
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Student loans

The cost of higher education continues to increase on a yearly basis creating a significant financial burden on many students and their families. Students not only have to pay for their tuition fees but also their living and accommodation costs. To help them meet these expenses students in the UK are eligible for government funded loans and grants through the Student Loan Company (a government owned body).

It is essential that you know what you will be repaying before you borrow and that you understand how student loan repayments work. This is a resource page that will give you all the information that you need about student loans. You will learn about the loans you are going to take out, their interest rates, when you have to pay them back, and where you can get help paying them back. It is vital that you understand the ‘real cost of borrowing’ before you agree to anything as this more than anything else will help you to stay on top of your finances.

Loan eligibility
Students must meet two eligibility requirements, firstly personal eligibility and secondly course/institution eligibility. They must be studying full time for an undergraduate degree at a UK degree-awarding institution or other verified higher education establishment.

The advantage of student loans

  • For student it will probably always be their cheapest option to getting a loan.
  • They are essentially interest free and are designed to ensure that there is no 'real' cost of borrowing.
  • Any money you borrow will be charged at a nominal interest rate so that, in effect, you will pay back no more than you actually borrowed.
  • They do not require credit checks or collateral.
  • Can help you meet the financial costs involved with further education.
  • It is highly unlikely that you will be able to get an interest rate as low as the one offered by the student loans company anywhere else.
  • Other types of loans from banks require applicants to have a good credit rating, this is not the case when you apply to the Student Loan Company. 
  • They can save you from having to work to support your studies, and thereby leave you with more time to study.
  • A variety of deferment options and extended repayment terms are available.

Applying for a student loan
It is always best to apply as early as possible. How much money you can get from a loan ultimately depends on the following key points;

  • Your family’s income.
  • Your personal circumstances.
  • What year of study you’re in.

The application process has been designed to be as simple as possible. This is important as many students and young people will probably have never applied for a loan before and will not be familiar with the process.  Student Finance England are now responsible for processing all applications for student loans and grants for higher education courses.

Student Finance England,
PO Box 210,
Darlington,
DL1 9HJ.
Further information is also available on the SFE website
www.direct.gov.uk/studentfinance
Telephone    0845 300 50 90

Opening hours
Monday to Friday, 8.00 am to 8.00 pm;
Saturday and Sunday, 9.00 am to  5.30 pm

Repaying your student loan
Unlike other commercial loans, how much you repay each month is determined only by your income, not by how much you owe.

For those who started University between 1998 to 2011 you only start to repay the loan when you are earning more than £15,000 annually, and for those starting after 2012 the threshold is £21,000.

You start paying your student loan in the April after you graduate. For example, if you graduated in June 2012, you would start paying your loan back in April 2013. Although it is worth remembering that you can pay off your loan fully or partly well before you start working. 

Once you start working repayments will be deducted through the tax system at the rate of 9% on that part of your income over £15,000 a year. Repayments are usually taken directly at source, via the PAYE system and so can vary monthly or weekly. If you’re self-employed you have to work out your own repayments in the same way you would have to work out your tax and National Insurance payments.

Also remember that the government has agreed write off any outstanding loans after 25 years.
Students that started University between 2006 and 2011 will have their debts wiped after 25 years (35 years for Scottish students). Students that start from 2012 onwards will have their debts wiped after 30 years. The loans can also be written off is the borrower reaches a certain age.

Bear in mind that these types of loans work off the principle of compound interest – the interest also earns interest.

You are able to take a repayment holiday of up to 5 years which is ideal is you are planning to buy a house, start a family or get married.

Interest rates for a Student loan
The interest rates are calculated in one of two ways, either the Student Loan Company adds 1% to the current base rate set by the Bank of England, or it sets it the same as the inflation rate (as measured by the RPI – which measures how much the price of retail good increases each year). The Student Loans Company always uses the lowest measure.

Types of student loans
Students are eligible for two types of loans from the authorities, Tuition Fee Loans and Maintenance Loans (also known as the Loan for Living Costs). Taken together these two form your total student loan package.

Tuition Fee Loans
These loans will go straight to your University to pay off your tuition fees. Remember that fee amounts are increasing each year in line with inflation and can be up to £9000 for the 2012/13 academic year.

Maintenance Loan
This is paid via three instalments directly into your bank account, and is designed to help pay for living costs whilst at university. It is worth noting that firstly those applicants living at home entitled to less, secondly those living at universities in London entitled to more, and thirdly students from low-income households may apply for their loan to be increased.

Maintenance loans are means tested, meaning that the amount that you can borrow is determined by the income in your household. Support is usually 'income assessed' which means that the income of an applicant and the people they live with (along with their circumstances) is used to determine the level of an award.

Maintenance grants
As well as the maintenance loan, students from low-income households are also entitled to a maintenance grant, which does not have to be repaid.

Questions to ask yourself before you apply for a student loan

  • Do you really need the money?
  • Can you realistically afford to pay back any loans in the future.

Work out the amount you need to borrow and can afford
To avoid graduating with ‘unmanageable debt’ it is important that you not only determine exactly how much you need to borrow for your higher education but also how much you can afford to pay back. You should work hard to keep the loan as low as possible. Below is a list of living expenses that you need to factor into your calculations;

  • Books
  • Accommodation  i.e. renting
  • Food
  • Travel
  • Entertainment

Key points to note

  • Check that the course and University that you want to attend enables you to be eligible for a student loan.
  • Inform the student loans company of any changes to your situation as soon as possible.
  • You do not have to take out these loans, although many students do.
  • These loans are not available to the general public.

What are grants
These are non-repayable allowances paid to eligible students either from a lower income background or for a specific purpose such as travel or equipment. Grants and bursaries don't have to be repaid unless you leave your course early.

Part time students
All new part-time students starting their course on or after 1 September 2012 are eligible to apply to for a Tuition Fee Loan to cover their tuition fees.


Related links
Student accounts

Links to other relevant graduate resources
Graduate cover letter example
Graduate CV template examples
Graduate internships
University courses

Student resource links
Mature student courses
Student accommodation
Student accounts
Student cover letter
Student CV templates
Student discount cards
Student loan company
Student travel
Student travel insurance


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