That means the cohort lose more of their disposable income, making mortgages far less 'affordable'. Before you look at the table Please be aware it's designed to give a VERY rough indication of who's likely to pay the loan off. Yet as you'll see in point 15 that's often a bad idea. Yet a quirk of the system means technically, beyond a certain point, that's not true. Eligibility is usually determined by household income, or other personal circumstances, eg, those with children or those leaving care. Many worry about the "huge debt" putting lenders off, actually that isn't a problem, student loans don't appear on your credit file, so the impact isn't really about whether you'll be allowed a mortgage or not.
The truth about uni fees, loans & grants
Tuition fees may have trebled but your costs don't have to: 20 facts on fees, loans and grants and the impact on students' pockets of student loan changes. Lower your Payments Starting Now! Consolidate Payday Loans, Medical, & Credit Card Debt. Federated Financial was one of the largest consumer education organizations dedicated to teaching the skills necessary for a secure financial future.
Read Martin's "student loan interest's rising to 6. It was for this reason, and while no fan of them, when massive changes were announced to student finance for those starting in or beyond — including the trebling of tuition fees — I agreed to head up a student finance taskforce. The idea was to work with the National Union of Students, universities and colleges to ensure we busted the myths and misunderstandings that resulted from so much political spittle-flying.
For me what really counts is that no student is wrongly put off going to university thinking they can't afford it. Some may rightly be put off, but unless you understand the true cost, how can you decide? I hope this guide helps achieve that. Thankfully, since then, we've also won a separate campaign to get financial education on the senior school National Curriculum in England.
Yet it'll be a long time before that truly pays dividends — so there's still a lot of nonsense spoken about student loans. But in essence that fear is misplaced. That's because the price tag of university is mostly irrelevant. What matters in practical terms is how much you have to repay — and that's a completely separate number from the total amount of tuition fees, maintenance loan and interest, because it all depends on what you would pay.
What you repay solely depends on what you earn after university. In effect this is, financially at least, a 'no win, no fee' education. Those who earn a lot after graduating or leaving university will repay a lot.
Those who don't gain too much financially from going to university will repay little or nothing. It ISN'T a case of 'pay up or you can't go'. Once your application has been processed, tuition fees are automatically paid by the Student Loans Company. And there is a loan for living costs too. Full-time students only need to start repaying these at the earliest in the April AFTER they graduate or leave , no matter how long their course is. Of course you don't have to take these loans, you could pay the tuition fees directly.
Yet as you'll see in point 15 that's often a bad idea. If you already have a higher education qualification you're unlikely to be able to borrow the money. The amount nursing students will get depends on whether they live inside or outside London and whether they are living at home. Muslim students in England are set to be able to get alternative student finance acceptable under Sharia, although there is no news on when this will be made available.
We'll update the guide as soon as we know more. Earnings mean any money from employment or self employment and in some cases earnings from investment and savings.
Even if you've started repaying the loan, but then lose your job or take a pay cut, your repayments drop accordingly. To labour the point somewhat:.
This panicked question has been thrown at me by many parents — and it's really important to examine it in the light of the required repayments. Someone on a low wage will be required to repay little or nothing at all. In fact, only higher earners will be shelling out large amounts. It's important to note that not repaying much because you're just over the threshold isn't being bad.
The system is, in reality, a graduate contribution, designed so that, in the main, those who gain the most financially out of university contribute the most. You only have to pay back your student loan if you earn over the earnings threshold in a tax year.
Yet most payrolls work on a monthly basis. You don't get any tax breaks on the fact you're repaying the student loan. The answer is yes. The student loan has been set up as a contract, not a tax; therefore, the fact that you're no longer living in the UK doesn't affect that contract. Not doing so could lead to substantial penalties. And this local equivalent isn't just a currency translation, it factors in the cost of living in your country, so it can be radically different.
If we ignore the moral obligation to repay the state for the education it provided you, the real question here isn't "Do I have to? This is an issue of enforcement. Certainly if you temporarily leave the UK and come back having missed some payments, expect to be pursued. If you move abroad permanently, never to return, there may be no attempt to pursue you in a foreign court.
But there are no guarantees of that. What's more, the Government has said it will chase people who move abroad more thoroughly than it has in the past — through 'sanctions' and prosecution.
We'll update this guide when more on this becomes available. Whether student loan repayments are taken from your salary before or after you make a pension contribution depends on how you contribute, and what sort of scheme you're in. So, if your pension contributions lower this figure, then that's the one assessed for student loan repayments. However, some defined benefit schemes take the pension payment pre-tax, but after national insurance. In which case, you'll have slightly higher student loan contributions.
You stop owing either when you've cleared the debt, or when 30 years from the April after graduation have passed, whichever comes first. If you never get a job earning over the threshold, it means you won't have repaid a penny. It's one reason those who are near retirement, who don't have a degree and want one, find it very appealing as unless they've a huge pension, they know they'll never have to repay.
The debt is also wiped if you die, so it won't be passed onto your beneficiaries as part of your estate. It's also wiped if you're permanently disabled in such a way that you'll be permanently unfit to work in such a case, earnings will usually be under the threshold anyway, but this rule's there for rare cases where unearned income is above the threshold to allow the recipient to keep it all. In this case, what you borrow is irrelevant — you'll just keep paying each month until it wipes after 30 years.
The following table should help you see roughly who's likely to pay the loan off, and what the total cost will be. As inflation and students' future income are both unpredictable, we've had to make some assumptions. This table should be seen as an indication of scale rather than anything more exact. Please be aware it's designed to give a VERY rough indication of who's likely to pay the loan off. We've been forced to make many assumptions about inflation, earnings growth and graduates' earning growth, small changes which have a big impact.
So please use this as a guide only. You're likely to spend periods not working redundancy, career break, unemployment, parenting. All student loans since have been repaid through the payroll just like income tax.
What this means is that once you're working, your employer will deduct the repayments from your salary before you get it. So the amount you receive in your bank account each month already has it removed. This means no debt collectors will come chasing as you don't have a choice in the matter and will have paid it automatically. For the self-employed, this is done via HMRC's self-assessment scheme. This also applies if you have additional self-employed earnings on top of employment.
If you fail to pay, you'll be sent a reminder. Ignore that, and in a similar way to failing to repay your taxes, you could end up in court. Until there was no 'real' cost to borrowing money via student loans, as the interest rate was set at the rate of inflation RPI. If you don't understand interest rates? Yet for everyone who started university since the major changes in that's all changed.
The interest is as follows:. This continues until the first April after graduation when it changes to…. These thresholds are frozen until , but could rise with average earnings after. It's worth noting all the above scenarios assume inflation is positive prices rising. It's not yet known what would happen in a period of deflation prices falling. The rate used is the previous March's RPI inflation rate. March 's RPI inflation rate was 3. Student loans are interest free for many I'm no fan of the fact that students aren't just being charged for their education, they also pay for financing it with above inflation interest.
Yet that's a principled stance. Being charged interest isn't the same as needing to repay it. In practical terms for lots of graduates especially those who never become high earners, they'll never end up repaying any interest, so it's meaningless. And now, if your course starts on or after 1 August , you are also eligible for maintenance loans or grants as well - although students over 60 don't qualify.
New master's students can apply for a Master's loan from the Student Loans Company to pay for their courses. These only need repaying if they earn enough once the course ends. New students studying on a doctoral level are eligible to apply for the Doctoral loan. Like the Master's loan, it only needs to be repaid if they earn above the threshold. But it's worth examining whether this makes a jot of difference to you. Of course, the more you borrow, the longer you'll be repaying.
Full-time students at the start of their course can also take a loan to pay for their living costs, eg, food, books, accommodation and travel. They are known as maintenance loans, and are usually paid in three termly installments direct to the student's bank account.
The amount you can borrow is means-tested, in other words, it depends on your or your parents' residual income pre-tax income minus pensions — see a full definition of residual income.
If income is higher, then you or your parents are expected to fill this financing gap — if they don't it can be difficult. Feel free to show them this to help explain the way the system works. It used to be these loans were only available to the under 60s. The loans will be available to those on technical education courses at levels four to six in national colleges and institutes of technology.
Full details of the loans, including maximum amounts and means-tested elements, are yet to be announced, we'll update this guide when we know more. The amount of money to live off can barely cover accommodation fees in some circumstances.
Therefore, it's crucial to ensure there is a real focus on budgeting, and you don't spend the cash the first few weeks of term. Part-time jobs, any grants, extra cash from parents will all help. To get the cash by the start of the September term, you needed to meet the following deadlines, which change based on where you live:.
If you live in England: For new students it was 25 May, for returning students, 22 June. If you live in Wales: For new students it was 11 May, for returning students, 8 June. If you live in Northern Ireland: For new students it was 13 April, for returning students, 29 June. If you live in Scotland: The silver lining to this cloud is that the maximum borrowing was substantially increased from , though only for new students.
The amount of maintenance loan you get's based on your parents' or household income. The amounts differ depending on where you are living. However, it's worth noting that if you're eligible for benefits, there's more than one university student in your household, or you've applied for supplementary support, your parents' income's assessed in a different way.
In practical terms, getting rid of the student grant will only affect high-earning graduates. Those who'd currently qualify for a full grant would only actually pay more if it was wiped, if they'd repay their entire tuition fee, remaining maintenance loan after the grant, and interest within the thirty years before the debt wipes.
That is at the very high end of graduate earnings. The real risk with ending grants is the fact larger loans can be a psychological deterrent, especially to those from non university backgrounds. When you borrow from a bank for a credit card, loan or mortgage, to evaluate whether they'll make money from you lenders look at three pieces of information — your application form, any previous dealings they've had with you and crucially, the information on your credit reference files full info: How Credit Ratings Work.
Most normal financial transactions and credit relationships you have are listed on these files — yet student loans are not included with the exception of students who started university before under the original loans system and defaulted.
So the only way loan, credit card or mortgage providers know if you've got a student loan is if they choose to ask on application forms. They can do this and it happens, but in general it's only for bigger value transactions such as mortgages.
Of course, having a student loan is worse than not having one when it comes to getting a mortgage. Though going to university often results in earning a higher salary, which usually cancels this out.
Many worry about the "huge debt" putting lenders off, actually that isn't a problem, student loans don't appear on your credit file, so the impact isn't really about whether you'll be allowed a mortgage or not.
Of course, as you have lower take-home income with a student loan, that means you'll be assessed as being able to make smaller repayments. Yet actually in some ways the changes were an improvement. While it's now a somewhat dated issue, it does merit a mention — and if you understand this explanation then it means you've nailed understanding the new system.
If we contrast student loans for those who start now with their predecessors, while the borrowing is bigger, the repayments are smaller. That means the cohort lose more of their disposable income, making mortgages far less 'affordable'. Yet the fact they repay more each month and have borrowed less mean they're likely to clear their debt much quicker, so once they've repaid it typically after a decade or so , they then have a bigger disposable income.
Thus all in all, for mortgage getting at least, the change was swings and roundabouts. While in general we'd encourage people to repay their debts as quickly as possible, student loans are one of the rare cases where that will be a bad decision for some people.
Overpaying each month could actually be peeing in the wind — as the overpayment's not reducing the amount you'd need to pay back at all.
Even if you've enough cash to clear the loan in full it may not be worth it as your repayments primarily depend on what you earn, not what you borrowed. It could mean you need to repay less than what you owed. Many parents save up to avoid their children getting into 'debt'. Even more horrifically, some borrow money themselves so their children won't need student loans. That's a petrifying thought, a student loan is the 'best' form of debt you'll ever get.
The interest is relatively low and crucially you only need to repay it if you earn enough. Yet even if you've got the savings anyway it can be very bad financial logic. Let's take a look Paul wants to study agricultural sciences. Then he comes back, gets married and becomes a full-time parent of their three children. In fact, they'd have been far better off to save the money towards a mortgage deposit for him, as that's a far more difficult task..
Scottish, Welsh and Northern Irish students, including those who decide to study in England, receive their financial support from their "home" devolved administration so it's a matter for those governments to decide how they wish to support their students.
Scottish students studying in Scotland pay no tuition fees. Student Awards Agency for Scotland. Throughout this guide, I've explained that the more you earn the more you repay. Yet a quirk of the system means technically, beyond a certain point, that's not true. In truth, for the huge majority of people this isn't relevant, so feel free to skip this technical point, but I add it in for technical correctness and because from a political perspective it is worth examining.
This quirk happens because seriously high earners pay off so quickly they have less time to accrue interest. If we take a ludicrous example to prove the point, if someone earned a billion pounds in their first month of work, they'd have cleared the debt in one month, so no interest would've accrued. Of course they still repay far more in total than low earners, but it does mean rather perversely that very very high earners repay less than high earners.
Try a wee experiment to see this. Now use the salary slider to change the starting salary and on standard assumptions of inflation and salary growth you'll see at first the repayments rise. The name 'student loans' frightens people. They scare the risk averse, which tends to especially be those from non-traditional university backgrounds off going to university. They make parents do silly things like borrowing on their expensive mortgage so their child won't be 'in debt'.
Even worse it means many students have lost the fear of debt, and ended up taking out credit cards or payday loans — after all if the Government enforces you to 'borrow' what can be wrong with it.
Yet the truth is what we call a student loan isn't really a debt like any other, in fact it acts far more like a tax than a loan. But in reality, it isn't a tax, it's more of a contributory contract; in effect, though, it's somewhere between the two. So if we're looking for a name for this hybrid form of finance, lets try the "contribution" as used in Australia.
Below are a few key student loan facts where I've changed the word 'repay' for 'contribute' and suddenly they make more sense. Suddenly this fear of debt looks ridiculous. Would a student say: The same is true of parents. Let's take this a step further, and put the 'contribution' within the model of income tax.
Take a look at this table. Think about this for a moment:. It's this piece of the budgeting jigsaw many people miss, but it's crucial — without knowing your income, you can't budget. I'd define a student's income as: Those coming from homes with lower incomes, or with less traditional university backgrounds, are likely to be offered incentives by universities. Here you are given a reduction each year on your tuition fees, meaning the loan you need is less.
This is some form of cash or gift in kind. Federated Financial was one of the largest consumer education organizations dedicated to teaching the skills necessary for a secure financial future.
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