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Congratulations if you've just finished your A-levels and congratuations to those who picked up their IB results the other day! Good luck to everyone else who's waiting patiently and anxiously for August to come around.
If you are looking forward to attending university in the Autumn, the vast majority of you will be paying for it using the Government's student loan scheme, as three years' tuition fees alone costs £21,750. The deadline dates have passed, however, as the forms are a total minefield you may still be asking yourself how it works.
Here are a few Q&As to hopefully simplify things for you:
What is a student loan?
A student loan is a loan (a lump sum of money) given to you by the Government when to help you pay for your time at university. There's one part that pays for your tuition fees and another part which pays for your living costs, such as accommodation, transport, and studying equipment, which is known as a maintenance loan. There's also a maintenance grant for students whose parents earn under a certain threshold and this does not need to be paid back.
How do I receive my student loan?
Your tuition fee will be paid direct to your university, while your maintenance loan will be credited to your bank account in three instalments at the beginning of each term. As you'll get such a big lump sum in one go, it's important to bugdet and make sure you have enough money to pay your rent when the end of term draws to a close.
How much can I borrow?
For those going to university in the Autumn of 2018 and living in England you can borrow up to £9,250 to pay for your tuition fees and up to £11,354 to pay for your living costs. The amount that you do receive will depend on your tuition fees, where you live, whether you live at home and how much your parents earn. The Government's student loan calculator quickly works out how much money you'll be entitled to receive. Additionally, the amount that you can borrow in Scotland, Wales and Northern Ireland also differs. You don't have to take out all the loan money you are offered if you have other sources of income, such as money saved from a job or your parents are willing to help you out.
How much do I have to pay back?
How much you have to pay back depends on how much you ultimately earn when you graduate. If you are living in England, you only have to pay back 9% of earnings above £25,000. This means that if you are earning £27,000 you'll have to pay back 9% of £2,000 a year - £180 a year or £15 a month. Money Saving Expert have a nifty little calculator to help you work out how much money you'll eventually have to pay back. You're loan is taken directly out of your payroll, while if you are self-employed you will have to write to the student loans company and set up paying directly to them. The debt is wiped off 30 years after your graduation so if you've still got debt to pay you don't have to worry about it any more! This is also true if you die early - your debt doesn't get passed on to a member of your family in a way that other loans do. In Scotland, Wales and Northern Ireland the starting salary at which you have to pay back your loan is different, as it the number of years before your debt is wiped off, so check with your country for clarification on these.
How does interest work?
As well as paying back the loan, you'll also have to pay a small fee to take it out. This is known as interest. Every year, when you are taking out the loan while at university, when you are paying it back in employment, or when you are not paying it back if you earn less than the starting salary, interest will be added to the loan.
The amount of interest added will depend on your circumstances - if you are still at uni or earning less than £25,000 it will be the same as the Retail Price Index (RPI - this is measured by working out how much the price of things like groceries, rent and bills go up each year) and this is currently set at 3.1%. If you are earning over £25,000 and therefore paying some of your loan back, the rate will go up by 0.15% for every £1,000 over £25,000 + RPI. This means that someone earning £28,000 will pay back their loan back at an interest rate of 3.55%.
Once you earn more than £45,000 or above the interest rate is fixed at RPI +3%.
How long will it take to pay back my loan?
How long it will take you to pay back your loan depends on how much you are earning and how much you borrow. The same Money Saving Expert calculator shows you approximately how long it will take you to pay back your loan and whether it will be written off after 30 years.
Can I pay back my loan early?
If you've received a windfall, perhaps through inheritance or a bonus at work, it is possible to pay off your loan early and there are no penalties for doing so. However, most experts, including Martin Lewis recommends not doing this. This is because if you are trying to save money you'll earn more interest by putting your money into an ISA than the interest you're gaining on your student loan so you'll be better off in the long run, and this is especially true of someone on a low wage. Additionally, if you are looking to take out a further loan, such as a mortgage in paying off your student loan you'll probably have to take out a bigger mortgage. Comercial loans come with higher rates of interest, so overall you'll pay more money.
