Managing student finance

Post by Mearns & Company in News

With Freshers’ Week upon us, another round of families will grapple with the prospect of financing higher education. For parents and students alike the headline costs can seem daunting.

The rules relating to tuition fees, loans and the repayment of these loans are different depending on which home nation the student is from, where they choose to study and their future earnings.

Most students in England, Wales and Northern Ireland now take out loans to cover tuition fees and living costs, with an average debt of £45,000 for graduates finishing in 2020. This figure can be misleading, however, as the way these loans are structured means most graduates will never repay this amount in full, so the ‘cost’ of a university education is far less.

Graduate tax

Student debt is more akin to a graduate tax, with graduates on higher salaries paying more. Students in England, Wales and Northern Ireland will only start repaying their tuition and maintenance loans once their earnings reach a certain level – currently set at £27,295 a year. This threshold is lower in Scotland – see below for key regional differences.

Under the current Student Loan scheme, graduates pay 9% of their earnings over that level once earnings breach the limit. For example, those earning £30,000 a year pay 9% of £2,705, a total of £243.45 for the year, taken in monthly instalments from their salary. However a graduate earning £60,000 would be looking at a more substantial annual repayment of £2,943.45.

Outstanding debt is cancelled after 30 years. Current projections suggest 75% of students will not repay their loans in full, so paying off part of a loan that will not reduce monthly repayments and could subsequently be cancelled may not be the best use of funds.

What can you borrow?

  • Tuition fees loan: All prospective students (in England) can apply for a loan of up to £9,250 a year to cover tuition fees This is paid directly to the university at the start of each academic year.
  • Maintenance loan: Students in England can apply for a maximum of £9,488 (£12,382 in London) to cover living costs if they are studying away from home. However this is a means-tested loan. Families with a combined household income of £70,000 receive just £4,422 with parents expected to make up any shortfall.

In Scotland the rules are different, Scottish students don’t pay tuition fees if they study at a Scottish institution. They can apply for a means-tested student loan and bursary to help with living costs. The threshold at which repayments are made varies depending on when loans were made. It is now set at £25,000 for loans taken out after 6 April 2021.

Other regional differences

The maximum annual tuition fee for Welsh students studying in Wales is £9,000. Maintenance loans and grants are available. As in England, these loans are only repaid once earnings reach £27,295.

Northern Ireland residents studying in the country pay a maximum £4,530 in tuition fees. A similar system operates for maintenance loans – however all outstanding debt is cancelled after 25 years.

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