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Demystifying UK student loans

Something we both found was when we were applying to University in the UK you are not given much information about student loans. I felt fearful having heard horror stories of US student loans about it being the only debt you can't default under bankruptcy under. However, the system in the UK is very different and is much more like a graduate tax. 

Key information on current student loans (2012 onwards)
  • Public universities can charge unto £9,000 a year maximum. You can take out up to £9,000 in a tuition fee 'loan'. This article will not address student finance for private universities due to their rarity in the UK. For part time students you can take out up to £6750 a year. 
  • You can take out a maintenance loan (and grant if you started in 2015/16, the've scrapped these for future years)
  • You start repaying the April after you graduate at the earliest
  • You repay 9% of everything you earn of £21,000 (this threshold was originally set to increase with inflation. However, it looks like they may be retroactively changing this and keeping it at £21,000. This means in reality, due to the impact of inflation you will pay more).
  • Example- Your earn £25,000 (Pretax). You earn £4,000 over the threshold so you pay 9% of £4,000 which is £360 a year. 
  • If your earning less than £21,000 you don't make any payments on the loan.
  • Remember bonuses count. The Student loan company look at your monthly paycheque so if you go over the £1750 monthly threshold even though you don't normally, that month you will pay towards your loans.
  • 30 years later it gets wiped (counting from the April after you graduate)
  • You have the option to pay off early. Though this option should be carefully considered as unless you are likely to pay off all the loan in the 30 years. This is obviously hard to predict but unless you have a high grad starting salary you are unlikely to reach the average salary over the years to have it completely paid off. Also consider if you will be taking time out of work for a number of years (i.e. to have children) this reduces your chance of paying it off. 
Assume you maintained a salary of £25,000 for the 30 years you would only pay of £10800 of your loan (if you took out 3 years of tuition + maintenance loan) this is likely to be less than half of the amount owed. 

However if you earned £45,000 average over the 30 years you would repay approx £64800 which means you are likely to repay the amount owed within the 30 years.

Why they are more like a graduate tax
  • There are no debt collectors. They payments come out of your pay check the same way your tax and national insurance does. You never see the money. 
  • There is no penalty for having your debt wiped
  • It doesn't affect your credit rating. The only time it affects anything is on affordability checks for mortgages i.e do you have enough money coming in to cover expenses + a mortgage.  
  • the more you borrow doesn't increase the monthly payments
There are some different rules for Scotland, Norther Ireland and Wales. 
  • Scotland- Scottish and studying in Scotland- tuition is free
  • NI- NI and studying in NI max £3805
  • Wales- Welsh and studying in Wales max £3810
Basically do not worry. Though we advise taking advantage of as many grants and scholarships as possible and if you don't have to take out the maintenance grant don't. But don't let the cost of tuition put you off getting a worthwhile degree (this is an important part, make you degree worth the money, think wisely about what you study and what employment potential it has). 


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    1 comment

    1. This is a brilliant post! I see so many people freak out about student loans and, for me at least, I don't see the point in worrying. You have explained it so simply - hopefully everyone that reads this will start to freak out less!

      Rachael at