The lowdown on student finance

Getting your head around the world of money can be tough. But, once you’ve got the fundamentals down, everything gets that bit easier.

In this special guest blog, Stephanie Fitzgerald from The Money Charity gives the lowdown on student loans.

What is a student loan?

A student loan is money you can borrow to pay for university. But, rather than going to a bank, it’s funded by the government and comes with special terms. Those differences aside, as the name implies, you’re expected to pay it back.

You don’t have to take out a loan, but you’ll need super-sized savings or other funding if not.

What’s on offer

1.     Tuition Fee Loan (up to £9,250 a year; except for private unis ). This is paid directly to your college or uni to cover the costs of your course. It isn’t ‘means tested’, meaning it doesn’t depend on how much you or your folks earn.

2.     The Maintenance Loan. This is there to help you cover living costs and is paid directly to you. How much you get depends on your circumstances. In some UK countries you can get a grant too, which you don’t have to pay back.

Tuition fees

Universities and colleges in the UK can charge up to £9,250 in undergrad tuition fees per year.

Now, before you throw in the towel, you should know the price tag isn’t the whole story:

• Most first-time undergrads won’t pay fees up front

• What tuition costs and how much you actually pay aren’t always the same.

How much are tuition fees?

Course fees vary by where you study. Here’s the most you can be asked to pay if you’re starting in 2023/24:

In Scotland: no fees for Scottish students; up to £9,250 a year for those from the rest of the UK who choose to study in Scotland.

In Northern Ireland: up to £4,710 a year for Northern Irish students, otherwise up to £9,250.

In Wales: up to £9,000 a year for UK students.

In England: up to £9,250 a year for UK students.

Most UK students won’t have to pay fees up front. Instead, you’ll be offered a tuition fee loan on pretty favourable terms.

You usually can’t get this loan if you’ve previously studied a degree or similar course, or are an international student.

Maintenance loan

How much you get varies depending on how much your family earns, which country you are from, and where you will study. The average maintenance loan is about £6,000 a year.

It goes straight into your bank account, and you can spend it how you want. It will need to cover rent, bills, food, travel and fun stuff, so a lot! You might need to top it up with extra money from a part time job or from family.

It’s paid into your account each term, so you have to make it last a long time!

Loan payments

Borrowing thousands in fee and maintenance loans each year of your course can feel breathtakingly reckless, but it’s not as dire as it sounds. The system is designed to ensure that, in theory, you’ll only pay back what you can afford.

When it comes to student finance it’s salary, not the size of the loan, that determines monthly repayments. Whether you earn £28k or £50k, you only pay 9% of any earnings above the repayment threshold – and anything you still owe at the end of your loan term is written off.

Here it gets a little tricky, but let’s try and break it down. There are several different repayment ‘plans’, depending on where you live and when you started studying.

• If you started studying from August 2023 and apply to Student Finance England, you’ll be on Plan 5. If you started studying before then, you’ll either be on Plan 2 (Sep 2012-July 2023) or Plan 1 (pre-2012).

• If you applied to Student Finance Northern Ireland, at any time, you’re on Plan 1.

• If you applied to Student Finance Scotland, at any time, you’re on Plan 4.

• If you applied to Student Finance Wales, you’ll either be on Plan 2 (post-Sept 2012) or Plan 1 (pre-Sept 2012).

Still not sure? Fear not! You can log into your online account on the gov.uk website to check.

Interest is applied to your student loan from the day you get your first payment up until you clear the balance, so you’ll end up owing more than you borrow. Your interest rate is different depending on which Plan you’re on:

• 6% on Plan 1 or Plan 4

• 7.1% on Plan 2 or Plan 5

Those rates are reviewed every September and can change, but while your total balance will increase, that won’t affect your monthly repayments.

It’s a sweeter deal than you’ll get from any bank, but remember that as your salary goes up, so will repayments.

See how the monthly repayments could look based on the current repayment thresholds in the table below.

You don’t start repaying the loan until you’ve left your course AND your annual income is above £25,000 (Plan 5), £27,660 (Plan 4), £27,295 (Plan 2) or £22,015 (Plan 1). Thresholds are reviewed regularly and generally rise, although they are currently frozen until 2025.

Once your weekly or monthly earnings are on target to hit that threshold, repayments are taken automatically from your wages before you get paid. But you don’t make repayments on your whole salary! Instead, you pay 9% of whatever you earn above the threshold.

If you don’t earn enough to clear the balance over your working life, eventually you’ll hit loan wipeout: any remaining balance is written off and repayments stop. Wipeout typically kicks in 30 years after you take out the loan (depending on which country you study in), but it’s 40 years if you’re on Plan 5.

Tips to make your money go further

Making ends meet on a student budget can be a challenge, so here are some top tips to help you make the most of your money:

1.     Do a budget – work out what you’ve got coming in minus all your expenses. You can use an app, spreadsheet, or the Budget Builder on The Money Charity website.

2.     Reduce impulsive spending using strategies like never going food shopping hungry, always writing a list and waiting a day to see if you really want more expensive items.

3.     Make the most of what your uni has to offer. Most have Money Advisors who can support you.

Good luck! For more info and tips on managing your money at uni, download the Student Money Manual now.

That’s everything for now. Keep an eye on the blog as we’ll be posting more articles to help you master your money. 

Interested in finding out more? Sign up for one of The Money Charity's free and interactive virtual workshops by emailing fintechpledge@themoneycharity.org.uk for a deeper dive on managing your personal finance.