How government student loans work
With UK universities now charging tuition fees of up to £9,000 a year, most students are looking to government loans for affordable finance. We agree, if you need to borrow money to fund your higher education, it’s the best place to start. And if you need more, we believe Future Finance is your best option.
A government student loan offers low interest rates and repayments that increase gradually with your salary. So if you’re eligible, this is a great way to borrow money for your studies. Let us help you get to grips with what’s on offer.
Here we’ll be focusing on student loans in England. If you’re looking to study in Northern Ireland, Scotland or Wales, the amount you can borrow and when you have to start paying it back will differ. For more info go to Student Finance Northern Ireland, Student’s Award Agency for Scotland, or Student Finance Wales.
Am I eligible for a government student loan?
You can apply if:
--You're either a UK national who normally lives in the UK and has been doing so for the past three years, or you’re an EU national who has lived in the UK for the past five years.
--You’re enrolling full-time (or part-time and studying at a rate of at least 25% of an equivalent full-time course each year).
--You’re enrolling on your first higher education qualification.
What can I borrow?
There are two different types of loan available.
1. Tuition fee loan: You can borrow up to £9,000 per year, which is the maximum amount a university is allowed to charge in fees.
2. Maintenance loan: The maintenance loan covers accommodation and living costs. You can borrow up to £8,200 per year (or £10,702 if you’re studying in London), although 35% of this amount is dependent on your annual household income.
What will I owe?
Some courses are cheaper than others, and many students opt to live at home. But if you take the maximum loans available for a three-year course, you’ll be paying back more than £50,000.
When do repayments start?
The good news is repayments don’t start until you’re earning over £21,000 (before tax).
How much are the repayments
You’ll pay back nine pence of every pound you earn over £21,000. So the more you earn, the more you pay. On a salary of £25,000 you’ll be paying back £30 a month. If you’re earning £35,000, you’ll pay back £105 a month.
How are repayments made?
If you’re on PAYE, repayments are automatically deducted from your salary each week or month. It’s a little trickier if you’re self-employed. You’ll need to calculate what you owe yourself and then pay the amount off with your annual tax return.
What’s the interest rate?
You start paying interest as soon as the loan hits your bank account. The rate, updated once a year in September, is dependent on what you earn.
During university. Interest is set at the Retail Price Index (RPI) plus 3% until the April after you leave your course.
Salaries of less than £21,000. From 6 April after leaving your course, interest is set at RPI.
Salaries above £21,000 and up to £41,000. The interest rate increases gradually with earnings: 0.15% for every £1,000 you make over £21,000.
Salaries above £41,000. You’ll pay the maximum amount of interest, set at RPI plus 3%.
How long is the loan for?
This depends on how much you borrow and how much you earn. Although a study by the Institute of Fiscal Studies found that three out of four of today’s students will reach their 50s still owing around £30,000.
Can the loan last a lifetime?
Student debts are automatically cleared 30 years after graduation. In fact, the Department for Business, Innovation and Skills predicts 45% of student loans won’t be paid back.
Can the loan be paid back early?
Yes, you can pay the loan off early without a penalty.
You may also like:
- How Future Finance loans work
- Repaying your government student loan: what the experts say
- Money basics: how a student loan works
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