Student Loans: What You Need to Know
There are two main types of loan, and you repay yours only when you stop studying and only when you earn above a certain salary threshold.
Whether you are leaving school and after the full immersion of living in halls, or a mature student looking for a masters or career change, going to university is expensive. Universities in England can charge as much as £9,250 a year in tuition and that’s before you factor in living costs.
This is where student loans, and this guide, come in.
How student loans work
Student loans in the UK — provided by Student Finance England, Student Finance Wales, Student Finance Northern Ireland and Student Awards Agency Scotland (SAAS), on behalf of the government body the Student Loans Company — will help you pay for studying, and living away from home.
Only some of your student loan goes directly into your own pocket. The rest goes to the university or college. How much, and what you can borrow in total, depends on what, where and how you’re studying, as well as your financial need.
The most important thing to recognise is that student loans from the government operate very differently from bank loans, mortgages or credit cards.
While you start owing interest from the day you take out the loan, you repay the loan only when you stop studying and only when you earn above a certain salary threshold. If you never earn above that threshold, you don’t have to repay them.
» MORE: Student loans repayment guide
What do student loans pay for and how much can I borrow?
Broadly, there are two types of loan — a tuition-fee loan and a maintenance loan — although many students take out both together and repay them together.
A tuition-fee loan does what it says on the tin: it pays for the cost of seminars and lectures, tutors, access to the library, labs or computer rooms. Bear in mind that it might not cover all the tools and equipment and books you will need, however.
In the 2020/21 academic year, English students studying in England can borrow up to £9,250 a year as a full-time student. If you live in Scotland and study full-time at a Scottish university, you don’t have to pay tuition fees but you will need to apply to the Student Awards Agency Scotland (SAAS) to have your tuition fees covered. In Northern Ireland tuition fees are capped at £4,395 for 2020/21 for those who stay there to study. And Welsh students studying Wales can borrow up to £9,000 in tuition fees.
If you decide to study in the UK, but outside your own country, you can borrow a maximum of £9,250 but from the student finance body in your own country.
Tuition fees are paid directly to your university or place of study, in three instalments across the academic year.
A maintenance loan, meanwhile, is paid into your bank account at the beginning of term. It provides money to help you get by while at university, to pay for your living accommodation, food, and essentials like beer and nights out.
How much you get will depend on your household income, where you live and whether you are studying away from home or remaining at home with parents.
As an example, in England you can borrow up to £9,203 in the 2020/21 academic year if you’re living away from home outside London, or up to £12,010 if you’re living away from home and in the capital. If you’re living in England but studying at home the maximum you can borrow is £7,747.
Postgraduate and part-time studying loans
If you have already completed an undergraduate course and are keen to gain further qualifications, there are funding options to help manage the cost.
Masters-degree students can apply for a loan to cover course fees and living costs up to £11,222 if your course starts after 1 August 2020. A postgraduate doctoral loan offers up to £26,445 after August 2020. These loans are not based on your or your parents' income, and are paid directly to you, not to a university or college.
Both types of postgraduate loans are paid in three instalments each year, you’ll get a letter stating exactly when the payment will land in your account.
Like undergraduate student loans, you’ll start repaying your postgraduate student loan when you stop studying and start earning above the repayment threshold.
Part-time students also can receive a loan if your course intensity is 25% or more (the percentage of the course you complete each year compared to full-time study). You’re eligible for up to £6,935 per academic year as a tuition fee loan and extra, depending on family income, in a maintenance loan.
Am I eligible for a student loan?
Not everyone is eligible for a student loan. You need to be attending a qualifying university or college studying a qualifying course (there’s a list of institutions and courses that count here). It must be your first higher education course, and you need to be a UK national or have settled status, and have been living in the UK for three years before the start of the course. There are some exceptions, for example if you are a refugee.
Those wanting to borrow a masters loan must not have received a loan or grant for a masters course before, or already have a masters degree or equivalent qualification. Similarly if you want a doctoral loan you must not have already completed a doctorate.
Pros and cons of student loans
For most people, university would be completely unaffordable without taking a loan to pay for tuition and living costs. In the UK, borrowing from the government is the cheapest way to do this. Any money you borrow from banks or private loan companies is owed regardless of how much you earn, will have an impact on your credit score, and could be subject to very high interest rates. Government-backed student loans have kinder terms.
However, student loans still come with interest rates that some criticise as being too onerous. This is currently 5.6% (Retail Prices Index plus 3%) for students on plan two loans while they are studying, which includes anyone who starts university now in England. Once you graduate interest rates are based on your earnings but still linked to RPI (RPI plus up to 3%).
You might find that you are entitled to grants, sums of money that don’t have to be repaid, to help fund some of your studies or living costs. Make sure you investigate what is available before taking out the maximum student loans. Try websites such as Family Action, Prospects and Turn2Us.
How do I apply for a student loan?
You need to apply through the student finance body in your country: Student Finance England, Student Finance Wales, the Student Awards Agency Scotland or Student Finance Northern Ireland. All let you apply online with proof of identity, and for a maintenance loan you’ll need to fill out household income forms.
You will need to apply each year for your course, not just in your first year. This is because the student finance body will want to know if your family circumstances change, given your loan will be based on the size of your household income.
Your first payments will arrive at the beginning of term. You will need to register at your university or college before the first payment of tuition fees is sent to them, usually in the first week of your course.
When do I start repaying student loans?
You have to start repaying from the first April after graduation, provided you earn above the repayment threshold. For the 2020/21 year, those thresholds are: £1,615 a month before tax for those on plan one loans, and £2,214 a month before tax for those on plan two loans. Postgraduate loans must be repaid when you earn £1,750 or more a month before tax.
Which plan you are on will depend on when you took out your loan. Typically, plan one applies to students who started studying before September 2012, while plan two is for students who started after that date.
You repay at the rate of 9% of anything you earn above the threshold (6% above the threshold for postgraduate students). There’s more detail in this student loan repayment guide.
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Laura is a journalist and author, writing about money since 2008. Including writing for The Times for 9 years. She believes finance doesn't need to be complicated. Author of Money: a user's guide. Read more