Your Ultimate Guide to Student Finance

When I started thinking about applying for university I had no idea how student finance worked. My biggest worry about going to university was taking on this huge amount of debt, for my case it was going to be around £55k. I spent so many hours researching and trying to understand how it all worked. 

This post will save you all of that time because I am going to explain everything you need to know about student finance in England. And yes they are slightly different to student loans in Scotland, Wales and Northern Ireland.

All figures are accurate as of December 2020

HOW DO I APPLY?

Applications usually open in the February of each year. You have to apply via the government website. You’ll need to create an account with student finance and answer some questions about yourself and your situation. Whether you will be moving away from home, living in London, have any dependents (e.g. kids or you are a carer) or on courses where you may get additional funding (such as a medical course).

Student Finance will then email your parents/guardians requesting proof of their income, this is what they will use to work out how much you are eligible for. 

Remember you have to reapply for finance each year of your course!

HOW MUCH WILL I GET?

There are two parts to English student loans; your tuition loan and a maintenance loan. Every student in England is eligible for a tuition loan, which will cover the entire tuition amount, currently £9250 a year. You will never see this money. It is paid directly to your uni at the start of every term.

Maintenance loans are for living expenses, like your rent, food, and whatever else you spend day-to-day. The amount you receive will depend on your parents/guardians income, whether you are living at home or moving away and if you’re studying in London or elsewhere. At its most basic level the more your parents earn the less you will receive. Currently the maximum maintenance loan you can receive is £12010 (studying in London and not living at home) and the minimum is £3410. The government website has a calculator to let you see how much you may be eligible for.

Unfortunately some of you may qualify for a maintenance loan that is just enough or even less than your rent. For example, my rent in first year was £5554 (for a room on campus with shared facilities) but the minimum maintenance loan for that year was £4168. I would have been £1368 short. This is quite common because the government assumes that your parents/guardian will top up your loan. Often this is not the case, meaning most students will have to find ways to earn extra income. My biggest piece of advice is to have honest discussion with your parents/guardian about the amount you are eligible for and how much they may or may not be able to support you.

WHEN WILL I GET THE MONEY?

Your maintenance loan will be paid into your bank account at the start of each term. In the first and second terms you will get 33% and then 34% at the start of the third term. This means you will need to make the money last the entire term. This is where budgeting comes in handy!

Don’t know where to start with budgeting? Why not try one of these easy budgets?

WHERE DOES THE MONEY COME FROM?

Student loans are dealt with by Student Finance Company (SLC), a company run by the government. You are essentially borrowing money from the government to support you during your studies.

DO I NEED TO REPAY THE LOAN?

Yes! But the how and when are determined by when you started your course. If you are an English or Welsh student you will be on either:

Plan 1 if your course started before 1st September 2012.

Plan 2 if your course started on or after 1st September 2012.

The plans have different interest rates and have different thresholds to when you begin paying back. 

How much will I pay?

You will only start paying off your loan in the April after you graduate or leave your course (if you drop out) if you earn more than the threshold. 9% of anything you earn over the threshold will go towards paying back your student loan. This is taken out at your employer, just like tax, so you will never actually see this money. 

Plan 1 threshold is £19380 a year.

Plan 2 threshold is £26568 a year.

Example: You make £30k a year. 

Plan 1: You are £10620 over the threshold. So you will pay £955.80 a year to student finance – which is £79.65 a month.

Plan 2: You are £3432 over the threshold. So you will pay £308.88 a year to student finance – which is £25.74 a month.

These thresholds tend to change most tax years, so they will not always be these values.

Is it written off 30 years after you graduate?

One of the main things that set student loans in the UK apart from other countries is that 30 years after you graduate (or drop out) your student loan debt is written off. This is why money experts don’t suggest trying to pay off your debt quickly or at all.

The interest rate will change 

The day you receive your first student loan payment – most likely the Sept/Oct of your first year, your student loan balance starts earning interest. Interest is the cost you pay to borrow money, whether that be a mortgage, credit card or overdraft. Meaning that your overall student loan balance will increase. Current students are charged 5.6% interest a year whilst studying, so your balance will increase by 5.6% each year that you are in uni.

The interest rate after you finish studying will again depend on when you started your course. If you are on Plan 2 it will also change based on your income. 

Example: My own student debt.

I am currently in the second year of my undergraduate degree. So far I have taken out £23547.75 in student finance. My current student loan balance is approximately £24900. This means since I began university I have been charged £1352.25 in interest.

What happens if I move abroad?

You will still need to pay back student finance even if you move abroad. Although it becomes a little more complex. You will need to get in touch with SLC and tell them about your move and your income, including proof. Then you will set up a repayment scheme with them following the same guidelines (e.g. income threshold and interest rates) as if you were still living in the UK.

BUT ISN’T ALL DEBT BAD DEBT?

Student finance will not affect your credit score

Student finance will not affect your credit score, it won’t even appear on your credit file. Therefore, taking out student loans will not impact your eligibility when applying for future loans or a mortgage. The only way a lender would know if you have student loan debt is if they asked you directly. So student loans don’t work like other debt, such as a credit card debt.

Low chance of paying it off

The majority of people never end up paying back the entirety of their student loans. So unless you end up in a job so high paid that there is a chance you will pay it off before it gets wiped, it’s not worth tackling. You can essentially think of it as an extra type of tax. 

DO I NEED TO TAKE OUT THE LOAN?

No! You don’t have to take out the loan and you are not automatically given it. 

So there we have it, your ultimate guide to how student loans work here in England. Hopefully you found this helpful and easy to understand!